• PAGE ONE
• INDEX
• HOME

`QR removal will affect agri-commodity prices'

C.J. Punnathara

KOCHI, Feb. 21

CONTRARY to the trends in major industrialised economies, the prices of agricultural commodities in the country have been firming up against that of industrial products. But, all that could soon change with the removal of quantitative restrictions and pr ogressive tariff reduction in the immediate future.

``The returns on agricultural products the world over has been falling steadily in relation to the strident growth in the price of industrial products'', Mr Vinod Thomas, Vice-President of the World Bank Institute, said. This is an inevitable process as there are limits to possible value-addition to agricultural commodities. Also, as long as food and agricultural production keeps abreast or ahead of population growth, the demand-push price-spiral will not be evident in agricultural prices.

Value-addition to food and agricultural commodities are limited. For all practical purposes, it might be possible to double or triple the value of basmati rice through value-addition process. There is, however, a limit beyond which value-addition possibi lities for agricultural products are not economically feasible.

In the case of industrial goods, this feasibility limit is substantially higher. Value-addition can not only add to the price of an industrial product 10 or 20 times the price of the original make, but also offer extensive additional services and facilit ies.

This was the prime reason why the terms of trade, price difference between agricultural and industrial goods, was always unfavourable to agriculture, he said. The price difference was also compounded by the fact that food and agricultural production had always been keeping abreast and often ahead of population growth.

This had been rendered possible through technological change and increased productivity, Mr Thomas said. But, while increases in productivity kept food and agricultural production ahead of population growth, it invariably depressed agricultural prices.

In India, the price trends have been moving in the opposite direction with prices of agriculture products rising faster than that of industrial products throughout the nineties. But the Economic Survey for 1999-2000 says one of the prime reasons behind t his trend is the opening and liberalisation of the industrial sector in India from 1991-92 onwards. This has brought in competition and reduced the price of industrial produce.

The opposite is the case with regard to agriculture. Agriculture has remained protected with high tariff barriers and a wall of quantitative restrictions. The successive spurt in Government-denominated procurement prices have raised the price of foodgrai ns and returns to the farmer. Consequently, agricultural prices have risen ahead of industrial prices throughout the nineties, the Economic Survey noted.

While foodgrains have remained privy to all these protectionist measures, commercial crops have had to face some impact from international competition. This has resulted in relative fall in the price of several commercial crops in relation to basic foodg rains in the past few years.

The removal of quantitative restrictions could shift the terms of trade in favour of industry and harm Indian agriculture. This could have a deleterious impact on India's food security, Mr Devinder Sharma, who has done extensive work on World Trade Organ isation treaty, has said.

In his publication, Selling Out - The Cost of Free Trade for Food Security in India, he has highlighted the high amount of subsidies meted out to agriculture by the developed countries and the impact that liberalisation and free trade could bring on Indi an agriculture.