The impact on agriculture of trade liberalisation with India

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The Trends: In recent years trade with India has been on the rise, partly through SAFTA and also indirectly through Dubai. By providing MFN status to India, informal trade now has the possibility to be formalised. With India being granted a long overdue MFN status, the agriculture sector in Pakistan faces challenges and opportunities to fully realise its comparative and competitive advantage. Pakistan has to prepare itself better and not let this opportunity slip, as had been the case, when trade liberalisation in cotton took place in 2006 under WTO.

 

Indian agriculture and its trade regime is much more diversified and export oriented than Pakistan; according to FAO statistics in 2009 India exported close to half a billion dollars worth of agricultural goods to Pakistan, composing 88 items, with cotton lint, cake of soybeans, onions, tea and chickpeas as top five exports. This does not include the trade that is taking place through UAE. Pakistani exports to India are restricted to $63 million worth of agriculture goods including 38 items, with dates, cotton lint, crude materials, sesame seed and concentrate orange juice emerging as the top five exports.

 

Further analysing the quality of Pakistan's exports of five commodities vis-à-vis their position in the Indian market, in terms of their competitiveness, reveals that other than cotton lint, all commodities are quite dynamic in terms of positive change, over the last ten years. We can understand the negative growth trend for cotton lint, as growing domestic production meets the demand.

 

Exports from Pakistan of sesame, orange juice concentrate and dates are real winners with high growth rates in a growing Indian market. The export of crude material represents a case of missed opportunities, where Pakistan has not capitalised on growing Indian markets.

 

We need to carry out similar analysis for a larger range of commodities to identify commodities that are dynamic with attributes of growth in an expanding market. These commodities represent "rising stars" to make our future investment productive in India, or as a matter of fact, in other markets, regional or global.

 

Few observations: Dates, the leading export from Pakistan are sold to India in the form of 'Chuara' at a throw-away price, with considerable rent seeking taking place all along the value chain. For cotton, whereas both countries are exporting to each other, Pakistan cotton is grown with valuable irrigated water, where as Indian cotton is grown under rain fed condition; if water becomes a scarce factor, we will be and are, in fact, exporting virtual water to India. Further, we know growing fruits, vegetables and raising livestock in Pakistan carries good comparative advantage, but none of these show up in the top list of exports from Pakistan.

 

Based on WTO statistics, India's average MFN rate is 13 percent, while Pakistan's is at 13.9 percent. This means that on average, India applies a 13 percent baseline duty on imported goods, while Pakistan is almost as liberal. However, India's average MFN rate for agricultural imports is much higher, at 27 percent as indicated in table. The highest protection is given to poultry, fishery and dairy products; protection provided to fruits and vegetables is close to agricultural average. Pakistan, on the other hand, applies a much more liberal average MFN rate for agricultural products of 17 per cent, translating into more favourable access to India. In light of this analysis, India is a much better place to export its diversified agriculture base, than Pakistan.

 

Pakistan, along with other countries, needs to press India to lower its tariff to provide better access to its huge and growing market. Being an agro-based economy, it should be a priority of our trade negotiators to seek relaxations in India's protectionist agri-import policy.


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