Agriculture: Vital to the US but in need of vitality at home

The fate of this punitive duty seems to depend on a host of factors, with the outcome of US-Russia negotiations on Ukraine possibly part of Washington’s calculus. But an important factor acting as an impediment to the successful closure of an India-US trade agreement is agriculture.

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Some observers suggest that America’s additional duty of 25% over and above the initial ‘reciprocal’ levy of 25% is only partly attributable to New Delhi’s trade ties with Moscow. The real motive behind the move may be to penalize us for the country’s reluctance to lower import tariffs on agricultural goods. 

For the US, access to the Indian market for its agricultural produce is an important demand. Although less than 2% of American workers are directly engaged in agriculture, with its contribution to US GDP  under 1%, agriculture accounts for 8.4% of America’s goods exports. 

Almost a fifth of all US agricultural produce is exported. Moreover, farm exports have been a major reason for price stability in its domestic markets for these items. It has also been an important source of income for US farmers. Agricultural exports as a percentage of total farm cash receipts were less than 15% in the 1960s, but now account for almost a third. 

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Nearly half of all US agricultural exports in 2024 went to just three countries: Mexico (17.2%), Canada (16.1%) and China (14%). From 2020 to 2023, China was America’s largest farm export destination, but the three together have accounted for almost half of all US farm exports in the last two decades. All three countries have been targeted by US President Donald Trump’s tariffs. 

While Canada and Mexico earlier enjoyed a free trade arrangement with the US, China had minimal tariffs. However, the tariff war unleashed by the US is likely to reduce US access to these markets. Among the two major crops exported by the US are soyabean and corn. Along with soyabean meal, these account for almost a fourth of its agricultural exports. These are direct exports. If indirect and processed exports are included, that share goes above 30%. Roughly a fifth of American soyabean is exported to China. 

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It is this changed global scenario that is driving the US to look for new markets. Two decades ago, India was a nearly negligible export destination for US agricultural produce. Even now, it is quite insignificant, accounting for 2% or less of US agricultural produce. But the very size of our population makes India an attractive prospective market for US agricultural exports. This explains why our tariffs are a sticking point in bilateral trade talks. 

However, it is important to protect Indian farmers from the price depressing impact of US-subsidized farm produce being dumped in India. For both soyabean and corn, our domestic market prices remain lower than the officially announced minimum support prices. This year, while monsoon rains have been plentiful, there has been a decline in soyabean acreage of almost 5%, as farmers were unable to realize better prices. Opening up Indian agricultural markets as part of a trade deal with the US would only make this situation worse. 

This is not the first time that agriculture has been a difficult issue in bilateral and multilateral trade negotiations. It was a thorny issue in the run-up to the formation of the World Trade Organization (WTO) and  has been so for more than two decades of its existence since then. It was an important issue during the Regional Comprehensive Economic Partnership (RCEP) trade negotiations from which New Delhi withdrew in 2019, given the vulnerability of agriculture. 

The announcement by Prime Minister Narendra Modi on 15 August of the government’s resolve to protect the interests of Indian farmers is welcome. However, overcoming the Indian farm sector’s challenges will require more than just resistance to foreign pressure. We also need to raise farm productivity and take advantage of new opportunities that changes in global trade dynamics may open up. 

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Our agricultural export performance has weakened. India’s outbound farm-produce shipments increased from $7 billion in 2003 to $41.2 billion in 2013—an annual growth rate of 19.4%. But over the next decade, the figure increased at an annual rate of just 1.7% to $49 billion in 2023. 

While this was partly due to unfair global trade arrangements, with India having given more concessions than it received, our own trade policies are also to blame. These often work against the interest of our farmers. 

This week’s decision to reduce import duties on cotton is yet another example of trade policy adhocism hurting our farm sector. While New Delhi should fiercely defend our agricultural interests in trade forums, it should also strive to increase our farm exports so that farmers can benefit from better price realization.

India’s strategy to defend the interests of Indian farmers must include efforts to both protect their income and increase agricultural productivity, irrespective of the shape and fate of trade negotiations. 

The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.