President Bush’s recent trip to India and the agreements signed there are indicators of new foreign policy and trade relationships between the U.S. and India. These improved relations may result in increased U.S. agricultural exports. India is currently a net exporter of agricultural products to the U.S.
India is like China in its contrasts of income and breadth of agricultural production. According to the U.N. 2004 Human Development Report, 35 percent of India’s 1.1 billion people live on less than $1 per day and 80 percent live on less than $2 per day. Average per capita income is about $450 per year. Low consumer prices provide greater purchasing power, but food still accounts for 54 percent of spending in rural areas and 42 percent in urban areas. Agriculture accounts for 60 percent of employment and 25 percent of the nation’s GDP. About 28 percent of the people live in urban areas, and that is projected to grow to 40 percent by 2025. India’s population growth has slowed to 1.7 percent per year, but projections show it will surpass China in population with 1.5 billion people in 2050.
Since 1980 the Indian economy has grown an average of 5.7 percent per year. India has focused on economic growth in services which now account for half the nation’s GDP. India has led efforts in the Doha round of trade negotiations to expand trade in services through outsourcing jobs to developing countries and allowing citizens of one country to work in another country for up to one year. The growth in services has led to the formation of a middle class of 200 million people living mostly in urban areas. They are diversifying diets with more vegetables, fruits, milk, eggs and poultry meat.
India’s average bound agricultural tariff is 114 percent compared to 12 percent for the U.S., 31 percent for the EU, 51 percent for Japan and 62 percent for the world average. Most processed, packaged products have tariffs of 50-150 percent. Fruits and vegetables have tariffs of 25-30 percent, except for apples with a tariff of 50 percent. India is the world’s largest importer of edible vegetable oils which accounts for 55 percent of domestic consumption and almost 70 percent of total agricultural imports. Low priced palm oil accounts for two-thirds of the imports.
In calendar year 2005, agricultural exports from the U.S. to India were only $293 million, accounting for 15 percent of India’s imports, while U.S. imports from India were $922 million. Tree nuts are the largest trade item for each country with the U.S. exporting $130 million worth to India and importing $267 million from India. India imported $42 million of cotton from the U.S.; primarily high quality cotton because India is the world’s largest cotton producer. Spices and teas account for $100 million in imports to the U.S. Regardless of what happens in the WTO talks and in India/U.S. bilateral relations, India’s agriculture will maintain a dominant role in feeding the Indian people. India has the world’s second largest amount of arable land at 400 million acres and the largest amount of irrigated land; just over a third of its cropland land is irrigated. According to the Economic Research Service of USDA, annual growth in agricultural output has been 3 percent per year since the 1980s. That growth rate has slowed in recent years and yields for most crops are below levels in other parts of the world. India is a leader in research on biotech crops that could increase productivity and improve farm incomes. According to estimates by the International Service for the Acquisition of Agri-biotech Applications, in 2005 India grew 3.2 million acres of biotech cotton, 15 percent of the cotton acreage. The government is funding biotech research on 16 plants ranging from bananas to chickpeas to muskmelons to wheat, while private companies are working on nine crops.
The opportunities for U.S. agriculture in India will be tied to the growth of the middle class. Poultry production is growing by 10-15 percent per year as modern production systems have expanded in southern India. While many people in India are vegetarians for religious reasons, others have not had a meat protein available at affordable prices. Fruits and vegetables already account for about 20 percent of India’s agricultural imports. Ongoing improvements of the marketing infrastructure will increase access. A recent study of the Indian apple market by the Economic Research Service of USDA found that high margins in the marketing system are as important as the 50 percent tariff on apples in limiting imports of U.S. apples.
Agriculture is one of five “focus groups” under the U.S.-India Trade Policy Forum, a bilateral committee of senior economic officials from both governments created in 2005 tasked with doubling total bilateral trade within three years. Sanitary and phytosanitary issues are to be addressed by the focus group. The two countries also have an Agriculture Knowledge Initiative formed in 2005 to help India’s development in agricultural education, food processing and marketing, biotechnology and water management.
Growth in U.S. agricultural exports to India will not occur unless India matches it words with actions on market access. While India’s government has aggressively pursued WTO negotiations to expand access for service providers from India, it has been unwilling to make substantive offers on reducing import tariffs for manufacturing goods and agricultural products. As a leader of the developing countries in the negotiations, India’s position on market access is more important than the amount of agricultural products they will actually import after the reforms are put in place. The government of India must walk a fine trade policy line between access for agricultural imports to meet the needs of its growing middle class and encouraging agricultural production reforms for the 60 percent of the population that is still dependent on small-scale agriculture. Opening up agricultural product markets would lower prices for consumers and spur those portions of agricultural production that need to make changes.