Agreement on Agriculture:

Agreement on Agriculture (AOA), which essentially shapes the emergingmultilateral

trade regime in agriculture. The crucial issue is whether the AOA
has brought about an open and free trade environment in agriculture.1 To
answerthis, one needs to have a fair understanding of the different tenets of
the AOAand the extent to which member countries have complied with them.As is well
known, the member countries of the WTO are expected to adhereto the
following three tenets of the AOAmarket access, domestic support andexport
competition.

Since the proposed fair and free trade regime stands essen-tially on these three
pillars, let us now examine to what extent India and otherdeveloped countries have
complied with them. More specifically, the centralissue is
whether the AOA led to a level playing field in the sphere of agriculturaltrade. A
priori it may be argued that if all countries have complied with theAOA,
the emerging scenario will be one where in they will gain by specializingin those
commodities that they have comparative advantage in. On the otherhand, if
one set of countries has fully complied with the AOA and others havefor a more
detailed discussion in the context of Kerala.
not, then those who have complied are likely to lose in relation to others. In
alimited sense, one could say that, other things
remaining the same, whether acountry will gain or lose from the WTO depends on its
response in relation tothat of other countries and a host of endogenous factors.
2.1 Market AccessMarket access (tariffication) commitment of agricultural products
is aimed atdoing away with all quantitative restrictions on trade in agricultural
commoditiesand replacing them with tariffs. Once non-tariff barriers (NTBs) are
tariffied, areduction in the base structure is envisaged in a time-bound manner
by 24 percent over 10 years in the case of developing countries and 36 per cent
over sixyears by developed countries. Least developed countries are exempted from
thesereductions.An examination of tariffication by India has shown that Indias MFN
rates for20002001 are significantly lower than that of final bound rates for
a large numberof commodities. The difference was more than 50 per cent and above
for 85.6 percent of the commodities, numbering 587. Thus, India has maintained the
URbound rates, but also unilaterally reduced the MFN tariff rates substantially
com-pared to the level of UR final bound rates
(Gulati 2001).Let us now examine, on the basis of available evidence, the extent to
whichdeveloped countries have complied with market access. Chadha (2001) has
shownthat a large and influential part of the developed world (notably the US,
Japanand the EU) has not gone in for full tariffication
of agricultural products; instead,they have opted for the so-called tariff rate
quota system for several commodities,which, in essence, restricts their entry
and deny legitimate gains to developingeconomies. The US tariff schedule, it has
been argued, includes as many as 192tariff lines to administer product-specific
tariff quotas, used particularly for dairyproducts, tobacco, cotton, sugar, etc.
Gulati (2001) presents an example that clearlyindicates a non-level playing field
in the case of dairy products. For tariff line40210 (milk powder, granules, etc.,
fat = 1.5 per cent) in 1998 the peak tariff ratein the EU was 99 per cent, in Japan
336 per cent, in Canada 213 per cent, inKorea 211 per cent as against 0 per cent in
India! While India has phased outmost quantitative
restrictions by March 2001, it has been argued that there areas many as 22 non-
tariff lines operative in Japan, 16 in EU, nine in Australia andfour in the US
(Panchamukhi 2000).2.2 Domestic SupportThe second aspect of AOA relates to
aggregate measure of support (AMS) givenby the government to the agricultural
sector. A country whose product-specificand non-product-specific AMS does not
exceed 10 per cent of the total agri-cultural output in the case of a developing
country (5 per cent for developedcountries) is not subject to any reduction
commitments. If AMS exceeds the de at SAGE Publications on October 27,
2010sae.sagepub.comDownloaded from
Commercial Agriculture in Kerala after the WTO / 41minimis level, the country is
committed to reduce domestic support by 13.3 percent in the case of developing
countries over 10 years and 20 per cent in the caseof developed countries over six
years. Given the fact that in India the estimatedAMS is found to less than
the de minimis level, it is not committed to any re-duction in AMS.It has been
argued that reduction in AMS by developed countries wouldincrease Indias
competitiveness in the agricultural exports and lead to welfaregains. For example,
an analysis of Indias competitiveness by taking the case ofselected crops by
Gulati and Kelly (1999: 128) have shown that:Superior cereals like wheat and rice
are definitely competitive import sub-stitutes, and have emerged . . .
as export competitive . . . . Their productioncould be further encouraged and
resources put in that direction will have ahigh social rate of return both
from the point of view of efficiency in resourceuse and food security.Their
analysis using a CGE model has further shown that:Indian exports and imports
in agriculture would go up, the net trade balanceon account of agriculture would go
up by 40 per cent over the base period199394 and rural incomes would
rise by about by 3 per cent and all thesetogether showed an improvement of 13 per
cent value of selected agriculturalcommodities (ibid.: 173).

The above conclusions have been based on the assumption that developed coun-tries
will comply with the AOA so that there will be significant reduction in theAMS
provided to the agricultural sector by them.But studies have shown that the support
to agriculture by developed countrieshas increased sharply in 1986 when the Uruguay
Round was launched and re-mained at that level until the nineties (Kelly and
McGuirk 1992). OECD (2000) hasshown that the producer subsidy equivalent, now
termed the producer supportestimate (PSE) for OECD countries as a whole was 40 per
cent in 198688 andcame down to 36 per cent during 199799, indicating a very slow
progress. Alongwith such reduction in amber box subsidies, there is evidence to
suggest that de-veloped countries are shifting those resources to green box
subsidies, which areconsidered non-trade distorting. While developing countries
like India have seensecular decline in the real investment in agriculture, the
unrestrained use ofgreen box subsidies by developed countries is bound to have
their adverse impacton India (Dhar and Dey 2001; RIS 2003).2.3 Export
CompetitionThe third tenet of the AOA relates to export subsidy. This requires the
membercountries to decrease the value of subsidies granted by 36 per cent as
compared to with the base period over the implementation period (six years). The
volume ofsubsidized export will have to be reduced by 21 per cent over the same
period. Fordeveloping countries, commitments involve reduction of export subsidies
by24 per cent and the quantity subsidized by 14 per cent during a span of 10
years.Here, again, least developed countries are not subject to a reduction
commitment.It should also be noted that countries like India, which have not been
using anyform of export subsidy during the period 198688, were prevented from
usingsubsidies in the new dispensation. Thus, the new regime left countries on a
veryunequal position with respect to the use of export promotion measures. The ad-
verse impact on India especially arises in a context wherein many of
developedcountries, despite the export subsidy reduction commitment, continue to
ex-tensively use export subsidies to promote their exports. The level of distortion
isevident from the fact that total agricultural export subsidies given by those
coun-tries committed to subsidy reduction amounts to Rs 7 billion per annum
(Gulati2001), of which the EC accounts for over 90 per cent.The foregoing
discussion reveals that while India has fully complied with theAOA, the response of
developed countries in general has been rather lukewarm.Thus, as argued by Bullion
(2003), the hegemonic Quad powers (the EU, theUS, Canada and Japan) advocate
liberalization for developing countries whilepractising protectionism in their home
markets. In the similar vein, UNCTAD(2001) concludes that in agriculture developing
countries have neither obtainedequal opportunities, nor are they on an equal
footing in international trade. Theyeven continue to face major export subsidies to
the detriment of developing theirown production for domestic and foreign markets.
The Uruguay Round agree-ments have hardly diminished as yet the level of protection
of developed countrymarkets or the amount of subsidy for developed country
producers, as the WTOdisciplines provide major special exceptions for
agriculture.There is a priori reason to believe that the impact of the WTO on food
cropsis likely to be different from that of export-oriented commercial crops. To
beginwith, it needs to be noted that the major competing countries for food crops
aredeveloped countries, where the agriculture is highly subsidized and are
character-ized by the incidence of high tariff and non-tariff barriers coupled with
subsidiesto promote agricultural exports. Hence, the implementation of the AOA by
thesecountries is likely to adversely affect their competitiveness. But studies
haveshown that the adverse impact of the WTO on the competitiveness of
highlyunprotected food crops in India is likely to be minimal (Bhalla and Singh
1996;Chand and Jha 2001). In case of commercial crops, competing countries
aremostly other developing and least developed countries, who are not subject tothe
WTO commitment, and are faced with severe debt and balance-of-paymentproblems
(UNCTAD 2002). Hence, the expectation of greater market accessthrough the removal
of quantitative restrictions and tariff barriers by importingcountries is likely to
result in enhanced supply and consequent reduction intheir prices.
Commercial Agriculture in Kerala after the WTO / 433. Commercial Cultivation in
Kerala:From Dutch Disease to WTO Shock?3.1 Commercial Crops: Some
CharacteristicsThe argument that the multilateral trading environment envisaged
under theWTO would lead to welfare enhancement depends, among other things, on
thefree mobility of factors within and across different sectors of an economy.
Incase of commercial crops, there are obvious limits to such mobility in the
shortrun because unlike food crops most of them are perennial crops. They havelong
gestation periods, ranging from three to four years for pepper, cardamomand tea,
and about seven to eight years for rubber and coconut. Once the gestationperiod is
over, the production could continue for even decades. Second, veryoften, the
specific agro-climatic conditions in which they are grown is such thatother crops
cannot be grown in their place. For example, cardamom is grownmainly under the
shades of evergreen forests and that hardly any other crops canbe raised there.
Similarly, in the case of tea and coffee, the land suited for theircultivation is
hardly fit for the cultivation of other crops. Hence, unlike short-duration crops
like wheat, rice and cotton, where the farmers have the option toperiodically shift
to other crops in line with market signals, commercial cropcultivators will have to
necessarily continue with the same crop over a long period.Thus, when it comes to
commercial crops, the specialization on the basis ofmarket signals as envisaged
under the free trade environment has obvious limits.3.2 Commercial Crops in Kerala
AgricultureSince our focus is on commercial crops, it is important to highlight
their role ofin the regions agricultural sector and the position of Kerala in
commercial cul-tivation in India. Kerala is historically known for the cultivation
of a number ofcommercial crops such as coconut, rubber, coffee, cashew, tea and a
number ofhighly priced spices like pepper, cardamom, cinnamon and clove. From Table
1it is evident that the share of commercial crops in the net sown area in the
stateincreased from about 57 per cent in 197071 to about 84 per cent in
20012.While the area under most crops increased, the highest increase was recorded
inthe case of rubber, coconut and black pepper. During the last three decades
theshare of area under rubber increased from a little over 9 per cent to more
than21 per cent.The shift in the cropping pattern of the regional economy (see
Table 1), whichwas marked by a decline in the area under labour-intensive food
crops and acorresponding increase in the less labour-intensive and high-value
commercialcrops, may be seen in the context of the rising cost of cultivation and
reducedprofitability inter alia on account of high agricultural wages in the state
(Kannanand Pushpangadan 1990). Even within commercial crops, the rate of increase
inarea has been high in case of rubber and coconut, which are the least labour at
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TABLE 1Area under Important Commercial Crops in Kerala197071 199495 20023Crop
Area (ha) Share (%) Area (ha) Share (%) Area (ha) Share (%)Tea 37,422 1.73 34,745
1.55 36,899 1.68Coffee 30,183 1.39 82,348 3.68 84,795 3.87Cardamom 48,000 2.22
44,237 1.97 41,336 1.88Cashewnut 98,960 4.57 103,451 4.62 89,718 4.10Pepper 117,540
5.43 186,720 8.33 203,956 9.31Coconut 719,140 33.20 910,963 40.67 905,718
41.34Rubber 198,424 9.16 443,300 19.79 475,039 21.68Total 1,249,674 57.69 1,805,764
80.61 1,857,663 83.86Net sown area 2,165,902 2,239,405 2,190,690Source: Government
of Kerala, Economic Review, different years.intensive among commercial crops.
Interestingly, highly labour-intensivecommercial crops like cardamom recorded a
decline in the area under cultivation(Joseph and George 1998). Thus, the shift
towards less labour-intensive com-mercial crops may be seen as a structural
adaptation of the regional economy tocope with the rising cost of cultivation inter
alia on account of rising wages. Thecrucial issue is how the WTO has had an impact
upon such an adaptation ofKeralas agricultural sector.Increase in the area under
cultivation of commercial crops was also associatedwith the growth of
smallholdings.2 Hence, to the extent that the commercialcultivation in the state
has a small holder focus, any adverse impact of the WTOon commercial agriculture
will have its bearing on large sections of society. Mostof these crops, except
rubber, are intensively cultivated in the high-range regions,namely, Idukki and
Wynad, which are the least developed districts in the state.These districts also
form a part of the Western Ghats region, which is known forits fragile ecological
base. Hence, it is likely that a crisis in commercial crop cul-tivation could
induce framers to adopt such survival strategies like the neglect oflong-term land
improvement measures. This may lead to the degradation ofland quality through
increased soil erosion. Damodaran (2002) has shown thatin Karnataka coffee farmers
adherance to the phyto-sanitary and other regulationsunder the WTO in a context of
falling prices has had an adverse effect on thecash flow of cultivators. To
overcome the situation, farmers have resorted to large-scale felling of shade trees
(for sale), which in turn has adverse effects on theenvironment. With an increase
in the area under commercial crops in the state,the regional economy has come to
play a leading position in commercial cultivation2 In case of natural rubber, for
example, according to the rubber statistics published by theRubber Board
(Government of India 2002a), in 20002001, more than 97 per cent of the totalnumber
of holdings in Kerala are under 2 ha. These holdings accounted for 72 per cent of
thetotal area under rubber. The smallholder dominance is also seen in case of crops
like coffee,cardamom, pepper and coconut. at SAGE Publications on October 27,
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Commercial Agriculture in Kerala after the WTO / 45in the country as a whole (see
Table 2). Kerala has near monopoly in the cultivationof rubber, pepper and
cardamom, accounting for 92, 82 and 72 per cent of nationalproduction respectively.
Its share in coconut (46 per cent) and coffee (23 per cent)is also considerable. It
has been shown that about 20 per cent households in Keraladepend directly on
commercial crops (Government of Kerala 2003b). Accordingto an estimate by the
United Planters Association of South India (UPASI), in20012 the total value of
output of plantation crops like coffee, rubber, pepper,tea and cardamom in south
India amounted to Rs 58,000 million. Out of this,Kerala accounted for Rs 31,250
million (54 per cent) as compared to Rs 17,500million (30 per cent) for Karnataka
and Rs 9,250 million (16 per cent) for TamilNadu (UPASI 2002).TABLE 2Share of
Kerala in the Area and Production ofMajor Commercial Crops in India (20023)Area
(in 1,000 hectares) Production (in 1,000 MT)Crop India Share of Kerala (%) India
Share of Kerala (%)Coconut 1,778 52.0 12,252 46.4Pepper 240 80.0 58.3 81.5Tea 437.8
8.4 818.3 8.1Coffee 346.6 24.4 301.2 23.4Rubber 558.6 84.6 622.3 92.0Cardamom 72.4
57.2 10.4 72.3Source: Government of Kerala (2003b).Note: Coconut production is in
million nuts.3.3 Growth of the Agricultural Sector in KeralaThe growth performance
of the agricultural sector may be better appreciated ifplaced against the backdrop
of the performance of the economy as a whole. Table 3presents trend growth rates in
net state domestic product (NSDP) and that ofdifferent sub-sectors (primary,
secondary and tertiary) since 1965. Based on ob-served growth rates in the NSDP,
four different phases could be discerned. Thefirst phase (196575) recorded a
growth rate of over 3 per cent, followed by aperiod of stagnation (197587). The
third phase (198797) recorded a markedrevival with almost three-fold increase in
growth rate as compared to the secondphase. This was followed by the last phase,
where there has been a decline in theoverall rate of growth of the economy. The
cyclical behaviour was perhaps thestrongest in case of the primary sector, mainly
agriculture, where a period of rela-tively high growth rate has been followed by a
period of negative growth rate.The table also suggests that the observed trend in
the economy could beattributed almost entirely to the primary and the secondary
sectors because the ter-tiary sector has maintained its growth momentum during the
period underconsideration. at SAGE Publications on October 27,
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TABLE 3Trend Growth Rates of Different Sectors in the Kerala Economy (%)Sector
196575 197587 198797 19972003GDP 3.21 1.99 6.00 4.77Primary 2.23 0.86 4.57
4.25Secondary 4.71 1.65 6.31 3.46Tertiary 4.24 4.06 6.96 9.44Sources: 196575:
Kannan and Pushpangadan (1990); 19752003 are our own estimates.Note: Growth rates
are significant at the 1 per cent level.The stagnation in the agricultural sector
during the period following the mid-seventies has been noted in earlier studies
(Kannan and Pushpangadan 1990; Narayana1992; Sivanandan 1985; Thomas 1999). It may
be noted that in analysing thegrowth dynamics of the regions agricultural sector,
these studies have essentiallyadopted a closed economy perspective and not taken
into account the export-oriented nature of Keralas agricultural sector. Harilal
and Joseph (2003) have madean attempt to analyse the stagnation since the mid-
seventies and the revival since themid-eighties in an open economy perspective.3 It
has been argued that the stagnationsince the mid-seventies has to be seen in the
context of massive remittances tothe regional economy resulting from the migration
of labour to the Middle East.Drawing insights from Dutch disease economics, it has
been shown that thestagnation in the tradeable sectors of the economy, which
includes, among others,commercial agriculture, was on account of the resource
movement and spend-ing effect associated with the remittance boom. The revival
of commodity prod-ucing sectors since the mid-eighties (more specifically, since
1987) has been attributedto the slowdown in remittances, devaluation of the rupee
by the national govern-ment as part of the economic reforms and also the structural
adaptation of theregional economy to the Dutch disease environment.Table 3 shows
that the economy in general, especially the agriculture sector,has moved towards
yet another period of crisis since the mid-nineties. While thesecondary sector
recorded a deceleration in the rate of growth, the primary sector,after recording a
growth rate of over 4.5 per cent during 198797, entered a phaseof severe crisis
with negative growth rate (4.3 per cent) during the last six years.Incidentally,
this period also coincided with the formation of the WTO. Giventhe predominance of
commercial crops in Keralas agriculture, let us analyse theperformance of
important commercial crops to explore their contribution towardsthe observed trend
in the economy in general and the crisis of the agriculturesector in particular.3
Balakrishnan (2003) adopted a similar approach when he sought to explain the
decline inpaddy production in Kerala after the land reform. at SAGE Publications on
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Commercial Agriculture in Kerala after the WTO / 473.4 Growth of Commercial CropsTo
analyse the growth of the agricultural sector, we have collected state-leveltime
series data on area, production and productivity of major commercial cropsfor the
period from 197576 to 20023 from the Ministry of Agriculture, Govern-ment of
India. In the present study, the period of analysis is divided into threephases:
first from 197576 to 198586, second from 198687 to 199697 andthe third phase
represents the period thereafter (199697 to 20023). Growthrates have been
estimated for the sub-periods and also for the period as a whole.4Estimated growth
rates in the production major commercial crops for thethree periods are presented
in Table 4. The table reveals that in tune with trendsin the primary sector, there
was stagnation or decline in production of all com-mercial crops except rubber,
pepper and ginger during first period (197475 to198687). However, the phenomenon
of stagnation noticed during the first periodreversed for all the crops during the
second period, with significantly higher ratesof growth. Rubber recorded the
maximum output growth (11.19 per cent)followed by pepper (7.7 per cent), cardamom
(7.6 per cent) and coconut (6.5 percent) during second period. As we have seen
earlier, this period also coincidedwith a major change in the cropping pattern of
the regional economy. The un-precedented growth in the production of all commercial
crops during secondperiod (198788 to 199596) may be taken as an indication of the
revival of the4 The usual method for the estimation of period-wise growth rates is
to estimate separate re-gression for each period. But the problems with such
analyses have been explained by Boyce(1986). He further suggests that period-wise
growth rates become more reliable if it can be esti-mated through kinked
exponential function, which imposes a continuity restriction at the breakpoint
between sub-periods. The methodology is presented below.Discontinuous growth rates
for the two sub-periods could be estimated separately using thefollowing dummy
regression equation.Log Y = a1 d1+ a2 d2+(1 d1+2 d2) t + ut ...(1)Where d1= 1 for
197576 to 198586= 0 for otherwise;d2= 1 for 198687 to 199899= 0 for
otherwise.The discontinuity between two trend lines can be eliminated by the linear
restriction:a1+ 1k = a2+ 2 k. From the restriction a2= a1+ 1 k 2 k ...(2)and
a1 d1+ a2 d2= a1...(3)Substituting this (2) and (3) in (1), we get:Log Y = a1+1
(d1 t + d2 k)+2 (d2 t d2 k)+utThis is called the kinked exponential model. This
is used to estimate period-wise growth ratesthroughout the analysis. at SAGE
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agricultural sector in Kerala. However, as we move towards the third period(199697
to 20023), the period that coincided with the formation of the WTO,there has been
a marked decline in the rate of output of most crops, with somecrops like coconut,
tea and pepper recording negative output growth.TABLE 4Growth Rates in the
Production of Major Commercial Crops in Kerala (%)Crops 197475 to 198687 198788
to 199596 199697 to 2002Coconut 0.44 6.53 1.02Rubber 4.27 11.19 1.38Coffee 4.71
5.03 8.3Tea 1.38 2.06 0.35Cardamom 0.02 7.63 10.16Pepper 3.00 7.70 3.113.5 The
Current Crisis in Kerala?sCommercial Cultivation: The Role of the WTOFrom the
discussion so far, it is evident that the formation of the WTO coincidedwith a
major decline in the output growth of the agricultural sector in generaland
commercial crops in particular. The issue is to what extent the observedtrend could
be attributed to the WTO. Essentially, the impact of the WTO maybe viewed in terms
of the level and volatility of the prices of commercial cropscultivated in the
state. An acute decline in commodity prices coupled with highprice instability
could have an adverse impact on the regional economy throughloss of income for
farmers and reduced employment opportunities for workers.Non-fuel commodity prices
internationally have been characterized by long-term downward trends since 1960 and
the recession in commodity prices duringthe eighties has been more severe and
considerably more prolonged than that ofthe Great Depression of the thirties
(Maizels 1992). However, the protectionistpolicy followed by the government of
India has been able to shield commercialcultivators to a great extent. For example,
in the case of natural rubber, the policyfollowed by the government has had the
effect of keeping domestic prices atlevels significantly higher than international
ones (see Figure 1). Studies havealso shown that market intervention by the
commodity boards in India has beenable to ensure stability in commodity prices.
Narayana (1994) has shown thatthe withdrawal of the Coffee Board from marketing has
had the effect of makingthe domestic prices of coffee more volatile.The capability
of the region to shield itself from international price fluctuationsdepends to a
great extent on the product structure of its exports and its prod-uctivity levels.
The former in turn depends on the regions capacity to invest inthe production of
value-added products coupled with its technological capabilityto develop new
products and thus moving up the value chain. An examinationof the export structure
of the regional economy shows that export is concentrated at SAGE Publications on
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Commercial Agriculture in Kerala after the WTO / 49mainly in bulk exports with very
limited share for value-added items. Forexample, in the case of black pepper, in
19992000 value-added products likepepper oil and oleoresins and other pepper
products accounted for only about13 per cent of the total export earnings from
pepper. A similar pattern was ob-served in the case of other crops as well.FIGURE
1Domestic and International Price of Natural RubberWhen it comes to productivity
levels (yield per ha) of major commercial cropsin India vis--vis competing
countries, it is evident that the production per hectarein India for a number of
crops is much lower compared to other countries. Forexample, in the case of pepper,
other major producing countries like Brazil (2.5times) Vietnam (4 times) and
Malaysia (5 times) have productivity levels muchhigher than that of India (Table
5). Similar productivity differences could beobserved in the case of other
commodities as well.5 In the absence of any majorupward movements along the value
chain and considerably lower productivitylevels, the fortunes of the agricultural
sector is bound to depend mainly on theprice received by farmers.5 Nonetheless, it
needs to be noted that in a crop like natural rubber, notwithstanding thehigher
yield, India faces import competition from other producing countries. at SAGE
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Trend in the Domestic Prices (Nominal) of Major Commercial Crops Since 1995Year Tea
Rubber Pepper Coffee Cardamom Coconut1995 41.86 52.04 77.08 126.8 201.58 3311996
44.42 49.01 83.75 83.21 365.82 4801997 61.57 35.8 173.43 80.59 276.42 4431998 73.31
29.94 206.03 83.89 566.65 5851999 62.03 30.99 215.02 67.64 488.19 4502000 44.63
30.36 174.24 42.12 570.41 2802001 46.02 32.28 94.54 27.3 622 273Note: For all crops
except coffee and coconut, price is given in Rs/kg. For coffee, price is given
incents per lb (obtained from the International Coffee Organization). Coconut price
is givenas Rs/100 nutsTable 5 presents the trends in the prices obtained by farmers
during the post-WTO period. It is evident that there has been a steady decline in
the price ofalmost all commodities. For most crops the decline has been sharp since
1998.To illustrate, the price of tea, pepper, coconut and coffee in 2002 is found
to beonly about 63 per cent, 45 per cent, 46 per cent, 32 per cent respectively of
thelevel in 1998. Thus, prima facie there appears to be evidence to suggest
thatduring the post-WTO period there has been a decline in the commodity
pricesacross the board.TABLE 6Productivity of Selected Commercial Crops in India
and Competing CountriesProduction per Ratio of Yield inCrops and Countries Hectare
(kg) Competing Countries to IndiaPepper (1999)India 370Brazil 957 2.58Indonesia 338
0.91Malaysia 1,955 5.28Vietnam 1,500 4.05Tea (1999)India 1,680Sri Lanka 1,454
0.86Turkey 2,222 1.32Kenya 2,066 1.23Indonesia 1,054 0.62Rubber (2000)India
1,117Thailand 1,190 1.06Indonesia 445 0.39Malaysia 429 0.38Vietnam 770 0.68Cardamom
(1997)India 149Guatemala 318 2.13Source: Government of India (2002a, 2002b,
2002c).Commercial Agriculture in Kerala after the WTO / 51The important issue here
is: can the observed decline in commodity prices beattributed entirely to the WTO?
Given the gestation lag between planting andharvesting, the cyclical pattern in the
prices of commercial crops is a naturalphenomenon. Therefore, this decline in
prices for a few years could be expectedeven without the WTO. But what
distinguishes the downward trend observedduring the post-WTO period is that the
decline in prices is almost across theboard. Almost all commodities have
experienced negligible or negative growthrates in prices during the post-WTO
period. If such across-the-board decline issomething unprecedented, one could infer
that the WTO has had some effecton prices. At the same time, different commercial
crops under considerationvary significantly in terms of the international trading
environment as well asworld supply and demand conditions. Hence, to arrive at a
precise answer, thereis no substitute for detailed crop-specific analysis. Since
such an analysis is beyondthe scope of the present study, we approach the problem
in the following way.We have estimated the annual growth rates in prices of major
commodities prod-uced in Kerala (rubber, coconut, pepper and tea) during the post-
WTO periodand plotted a graph. The observed pattern of growth rates during the
post-WTOperiod has been compared with the growth rates for the period prior to the
for-mation of the WTO. The period of analysis prior to 1996 has been divided
intodifferent six-year periods. The choice of a duration of six years was guided
bythe fact that the average time lag between planting and harvesting was found tobe
around five to six years for the crops (rubber and coconut: six to seven
years;pepper and tea: four to five years) under consideration. Needless to say,
since themethod adopted has its own problems, the conclusions need to be taken
asindicative.In Figure 2 we present the trend in prices of major commercial crops
during197778 to 20012 divided into four different sub-periods. It is evident
thatduring the last period, 19962001, there has been an across-the-board decline
inthe price of almost all crops. Incidentally, such a decline in prices has not
beenobserved in any of the sub-periods since 1977. Given the fact that such a
trendsynchronization with decline in prices has been associated with the WTO,
thereappears to be some merit in the argument that the WTO has had the effect
ofbringing about a decline in commodity prices. Here, it may be noted that
theIndiaSri Lanka Free Trade Agreement also would have had an impact on com-modity
prices through increased import competition. However, the decliningtrend in prices
started even before the implementation of the IndiaSri LankaFree Trade Agreement,
which was shown to be beneficial for the both countriesespecially by promoting
efficiency-seeking investments (RIS 2004). To the extentthat south Indian states
like Kerala, Tamil Nadu and Karnataka had to bear adisproportionately larger share
of the adverse consequences of the trade treaty(Harilal and Joseph 1999), there
appears to the case for a built-in mechanism tocompensate the losers.So far our
analysis has been based on price trends. It is not necessary thatfarmers will be
worse off with declining prices if the adverse impact is offset by at SAGE
Publications on October 27, 2010sae.sagepub.comDownloaded from FIGURE 2Annual Rate
of Growth in the Prices of Major Commercial Crops during 19782001 at SAGE
Publications on October 27, 2010sae.sagepub.comDownloaded from
Commercial Agriculture in Kerala after the WTO / 53increased yield and decline in
the cost of cultivation, resulting in higher incomelevels. The issue, therefore, is
how has the income of the farmers behaved duringthe post-WTO period? With a view to
enquire into this issue, we have made anestimate of the real income (gross) per
hectare.6 To provide some idea of the be-haviour of the cost of cultivation, we
have obtained the index of cost of cultivationfrom the Economic Review published by
the Government of Kerala (2003b). Figure 3presents the trends in the index of
income as well as cost of cultivation.FIGURE 3Index of Income and CostIt is
observed that the index of income of the farmers has shown a decline inalmost all
crops, especially after 1998. At the same time, the index of cost ofcultivation has
shown an upward trend. In the event of increasing cost anddeclining income, it is
obvious that the fortunes of commercial cultivators, amajority of them being
smallholders, have been undermined during the post-WTO period. The adverse
implications would not have been confined tosmallholders; our own visit to the
plantation areas in Kerala revealed that largenumber of plantation workers were
also adversely affected on account of decliningof employment and delayed payment of
wages, coupled with suspension of anumber of welfare measures by the estates.6 The
nominal income per hectare is the product of yield per hectare and the realized
marketprice. What we have estimated is the gross income. The net income depends on
the cost ofcultivation as well. The real income has been arrived at by deflating
the nominal income by thecost of living index. at SAGE Publications on October 27,
2010sae.sagepub.comDownloaded from
4. Concluding ObservationsThe focus of discussion in this paper has been the
implications of the WTO onthe regional economy of Kerala, which is known for its
unique development ex-perience. The issue at hand has been examined by taking the
case of commercialagriculture dominated by smallholders. Given the fact that there
has been a seriesof reform measures, even before the formation of the WTO, and
there were bi-lateral trading agreements, both having their bearing on the regional
economyas well as commercial agriculture, it was found extremely difficult to
isolate theimpact of the WTO from all other forces at work. Yet, to throw some
light onthe issue, we have examined the new trading environment for agricultural
com-modities, trend in output growth, commodity prices and farm income duringthe
post-WTO period and compared them with the earlier period. The observedtrend has
been placed against the backdrop of the regions growth dynamics, es-pecially that
of the agricultural sector.The new trading environment emerges at a stage where the
regions agri-cultural sector, given declining international competitiveness mainly
on accountof increased production cost and rising wages, has adapted its crop
structurewith focus on less labour-intensive and high-value commercial crops.
Unfor-tunately, the new trading environment is found to be not providing a level
playingfield for developing countrieswhile India fully complied with all the
provisionsof the AOA, the response of developed countries has been rather
lukewarm.Also, some of the provisions of the AOA acted as a signalling device,
resulting inexcess supply of primary commodities. The study finds a steady and
unpre-cedented decline in the price of commercial crops across the board. While
moreresearch is called for to empirically establish the role of the WTO in the
sustaineddecline in commodity prices during the post-WTO regime, the bearing of
thenew trading environment on the observed trend in prices cannot be ruled out.The
steady decline in the price of commercial crops in the context of low prod-uctivity
levels and focus on the low end of the commodity value chain has hadthe effect of
major income loss to farmers. Thus, the new trading environmentresulting from the
WTO seems to have had the effect of thwarting the effort ofthe state to salvage
itself from the adverse impact of a high-cost economy. To theextent that the new
trading environment creates gainers and losers, the studymake the compelling case
for compensating losers like the regional economy ofKerala in the context of the
IndiaSri Lanka Free Trade Agreement.As a final point, it may be noted that any
discussion on the implications of theWTO on the agricultural sector remains
incomplete without a detailed analysisof the initiatives undertaken by the regional
economy to address the new chal-lenges and take advantage of the opportunities if
any. It has been observed thatthe decline in prices has been confined to bulk
products where, as in the case ofvalue-added products, which are mostly controlled
by the MNCs, there hasbeen an increasing trend in price (Kaplinsky 2000). In this
context, it is importantto ask if there has been any attempt towards moving up the
value chain and at SAGE Publications on October 27, 2010sae.sagepub.comDownloaded
from
Commercial Agriculture in Kerala after the WTO / 55raising productivity levels. Has
there been any investments in post-harvestoperations in such a way as to generate
more employment opportunities in thefarm sector? To what extent we have explored
the possibilities provided by newtechnologies like information technology to
empower growers with access tovarious information, find new markets and develop
partnership with large cor-porations that control value-added products? Has there
been any attempt towardsbringing together different stakeholders like planters
associations, NGOs,exporters and government agencies to explore the opportunities
open by the WTOand to find ways and means to meet new challenges? It is heartening
to note thatthe Commission on WTO Concerns in Agriculture, appointed by the govern-
ment of Kerala, has made highly relevant recommendations and their implemen-tation
could help meet the challenges in harnessing some of the opportunitiesoffered by
the WTO