US Agricultural Support and Its Global Implications

In recent years, the agricultural landscape has been a focal point in international trade discussions. The United States, with a mere 1.82 million family farms, contrasts sharply with India’s 93.09 million agricultural households. Despite this disparity, US farmers enjoy substantial government support, influencing trade negotiations, particularly with India. The US seeks to include agriculture in discussions on market access and tariff reductions. This move comes amidst calls for India to open its agricultural market to US products.

US Agricultural Support Mechanisms

The US government employs several financial assistance programmes for farmers.  These programmes aim to stabilise farmers’ incomes and mitigate risks associated with fluctuating market conditions. Key programmes include:

• Price Loss Coverage (PLC) offers payments when market prices fall below a set reference price. This reference price is akin to India’s Minimum Support Price (MSP).
• Agriculture Risk Coverage (ARC) provides financial support when revenue dips below a guaranteed level based on historical data.
• Dairy Margin Coverage (DMC) aids dairy farmers when the price of milk falls below feed costs.

Magnitude of Assistance

In recent years, direct payments to US farmers have varied . In 2020, these payments reached $45.6 billion, constituting nearly 38% of net cash income for farmers. The forecast for 2025 anticipates $42.4 billion in direct payments, largely due to disaster assistance programmes.

Distribution of Payments

A report by the US Government Accountability Office (GAO) brought into light that portion of financial assistance is concentrated among a small number of producers. Out of $161 billion distributed between 2019 and 2023, 63% went to just 74,655 producers. This concentration raises questions about equity in agricultural support.

Comparative Analysis with India

India’s agricultural support system includes the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) programme, which has an annual outlay of Rs 63,500 crore. This, along with various subsidies and support measures, totals an estimated $57.5 billion. However, this support is spread across a much larger farmer base, leading to lower average payments per farmer compared to the US.

Impact on Trade Negotiations

The disparity in agricultural support between the US and India poses challenges in trade negotiations. Opening India’s agricultural market to US products may lead to unequal competition. The World Trade Organization recognises this imbalance and provides for “special and differential treatment” for developing countries. The adherence to these principles in ongoing negotiations remains uncertain.

Future Considerations

As trade discussions evolve, the implications of agricultural support systems on global trade dynamics will be critical. The balance between protecting domestic farmers and engaging in international trade will shape future agricultural policies in both countries.

Questions for UPSC:

1. Critically examine the impact of government subsidies on agricultural productivity in developed versus developing countries.
2. Discuss in the light of global trade agreements how agricultural policies affect food security in developing nations.
3. What are the implications of direct income support programmes on rural economies? Provide suitable examples.
4. Explain the concept of ‘special and differential treatment’ in international trade. How does it apply to agricultural negotiations?

Answer Hints:

1. Critically examine the impact of government subsidies on agricultural productivity in developed versus developing countries.

1. Developed countries like the US provide direct payments and safety net programs, resulting in stable incomes and higher productivity.
2. In contrast, developing countries often rely on indirect subsidies, which may not effectively enhance productivity due to inefficiencies.
3. Subsidies in developed nations can lead to overproduction and market distortions, affecting global prices.
4. Developing nations may face challenges in competing with subsidized products from developed countries, impacting local farmers.
5. The effectiveness of subsidies can vary based on governance and infrastructure, influencing overall agricultural output.

2. Discuss in the light of global trade agreements how agricultural policies affect food security in developing nations.

1. Global trade agreements often push for reduced tariffs, which can expose local farmers to international competition, impacting food security.
2. Developing countries may struggle to protect their agricultural sectors, leading to potential food shortages and increased imports.
3. Policies that prioritize export-oriented agriculture can divert resources from food production for local consumption.
4. Food security is threatened when local farmers cannot compete with subsidized imports, leading to reliance on external sources.
5. International agreements need to consider the unique challenges of developing nations to ensure sustainable food systems.

3. What are the implications of direct income support programmes on rural economies? Provide suitable examples.

1. Direct income support programmes can provide immediate financial relief to farmers, stabilizing rural economies.
2. Such programmes can enhance purchasing power, leading to increased local spending and economic activity.
3. Examples include India’s PM-Kisan, which supports millions of farmers, albeit with low per capita payments.
4. Direct support can incentivize better agricultural practices and investments in technology, improving productivity.
5. However, reliance on such programmes may lead to decreased motivation for self-sufficiency among farmers.

4. Explain the concept of ‘special and differential treatment’ in international trade. How does it apply to agricultural negotiations?

1. ‘Special and differential treatment’ allows developing countries to have more flexible commitments in trade agreements.
2. This principle acknowledges the challenges faced by developing nations, allowing them to protect their agricultural sectors.
3. In agricultural negotiations, it permits developing countries to maintain higher tariffs and subsidies to support local farmers.
4. This treatment is crucial for ensuring food security and sustainable development in developing countries.
5. Adhering to this principle in negotiations can help balance the interests of developed and developing nations.