Why India-EU FTA is unlikely to hurt Indian farmers despite apprehensions

India has for long given a strong pushback against the US attempt to open up its agriculture and dairy markets. In this backdrop, the substantial tariff concessions on agrifood products to the 27-member EU, announced in the Free Trade Agreement (FTA) on Tuesday (January 27), may seem threatening.

However, agricultural experts scotch such apprehensions. In fact, they think the FTA presents an opportunity for Indian agri products to expand and, if possible, shift away from the US market.

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But before looking at why agricultural experts think so, here is a brief account of what the FTA entails.

What EU gains from FTA

The European Commission (EC) has welcomed the opening up of the Indian market for its agrifood products. India has lowered tariffs for EU imports to 0-50 per cent — earlier, the tariffs were at an average of 36 per cent, going up to as high as 150 per cent.

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Here are the tariff changes the EC clearly lists in its factsheet:

a) Wine reduced from 150 per cent to 20 per cent for the premium range and 30 per cent for the medium range; spirits reduced from up to 150 per cent to 40 per cent, and beer from 110 per cent to 40 per cent.

b) Olive oil, margarine and other vegetable oils reduced from up to 45 per cent to nil.

c) Kiwis and pears reduced from 33 per cent to 10 per cent; fruit juices and non-alcoholic beer reduced from up to 55 per cent to nil.

d) Processed food (breads, pastries, biscuits, pasta, chocolate, pet food) from up to 50 per cent to nil.

e) Sheep meat reduced from 33 per cent to nil, and sausages and other meat preparations reduced from up to 110 per cent to 50 per cent.

What Indian agri sector gains

In sharp contrast, the Ministry of Commerce & Industry’s factsheet is vague, even confusing, raising serious doubts about what exactly India has gained.

Here are its listings:

a) “Immediate elimination” of tariffs on tea, coffee, spices and certain marine products.

b) “Zero” tariff “over 3 and 5 years” for certain marine products and processed food items.

c) “Preferential access by way of tariff reduction” for “certain poultry products, preserved vegetables and bakery products”.

d) “Preferential market access for agricultural products like tea, coffee, spices, grapes, gherkins and cucumbers, dried onion, fresh vegetables and fruits, as well as for processed food products”.

e) India has “prudently safeguarded sensitive sectors, including dairy, cereals, poultry, soymeal, and certain fruits and vegetables, etc.”

f) The FTA introduces “enhanced cooperation on SPS and TBT matters”, facilitating “recognition of conformity assessment results, enabling equivalence on SPS measures on technical justification and localised responses to pest/disease outbreaks”.

g) “By reducing tariffs of up to 26 per cent it will unlock the EU marine market; turbo-charging exports of “shrimp, frozen fish, and value-added seafood exports”.

h) “Strategic safeguards for sensitive sectors like dairy, cereals, poultry, soymeal, and certain fruits and vegetables, etc., ensure export growth while protecting domestic priorities.”

Non-tariff barriers

Harish Damodaran, National Editor (Rural Affairs and Agriculture Editor) at the Indian Express, who has tracked the sector for several decades, told The Federal: “I don’t know if they (EU) have opened up their agrifood market. They have opened up nothing.”

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In any case, he said, with the rupee value down, Indian exports have become competitive and “tariff is not a problem”. To him, the “real problem” is non-tariff barriers like the Sanitary and Phytosanitary Measures (SPS Agreement) which call for adopting measures to protect human, animal or plant life or health and stringent regulatory standards of the EU.

About the SPS, the EC factsheet says: “The EU has very stringent, science-based standards to protect human, animal and plant health. All products imported from India under the agreement will have to respect these standards” and that “all imports from India to the EU will continue to be subject to the EU's strict health and product safety rules, with no exception”.

What experts think

Ashok Gulati, Distinguished Professor at the Indian Council for Research on International Economic Relations (ICRIER), is hopeful that India can overcome the SPS for its agrifood exports just as it did for grapes. His advice is for India to be careful about using pesticides and other harmful chemicals in food production in any case.

Neither Damodaran nor Gulati think tariff concessions to the EU present a serious threat to Indian farmers. “It will be very marginal”, Damodaran said, explaining that EU exports are high-end products, not very competitive in bulk commodities and will not flood the Indian market like the US threatens to. Thus, exports from the EU wouldn’t affect the mass segments unless Indian firms seek to compete with the EU products.

The trading items are different too. While the EU will export high-end products in wine, spirits, olive oil and cheese (not milk or butter), the US wish-list includes soybean, corn, ethanol and dairy products.

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Both assert that the FTA presents a good opportunity for Indian exporters by opening up a big and significant market. Gulati’s advice to Indian exporters is to explore if they can shift from the US market to the EU market.