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Impact of EU-India FTA

Impact Assessment of FTA between EU and India

A Free Trade Agreement (FTA) between the EU and India is expected to benefit the Indian grains sector, with a rise in exports forecast, a new EU impact assessment report claims.  The report stresses that the bilateral trade liberalisation deal would have a positive impact on India's trade balance for grains, while the EU's processed food sector would stand to gain from increased market access.

The independent report, drawn up by Ecorys Research and Consulting Group, on behalf of the EU Commission examines the economic, social and environmental impact of a Free Trade Agreement currently under negotiation between the EU and India. In particular, the report looks at the potential impact on the grains sector for the EU and India, which includes both cereals and rice.
For the EU, the share of rice in total grains production is negligible, with wheat, barley and maize accounting for 85% of the total. The EU is a major cereals producer, with this year's EU-27 harvest reaching some 305Mt.

In India, rice makes up almost 45% of the total. The area cultivated under grains has increased sharply from 50.82M ha in 1950/51 to 211.78M ha in 2007/08. Rice and wheat are major food grains produced in India, with the share of wheat in grain production rising from only 12.71% in 1950/51 to as much as 34.8% in 2006/07.

The issue of genetically modified crops does not play a major role in trade between the EU and India, but this situation could change if India's current trials of GM grains are pursued, the report adds.

India's agri-food exports were worth around EUR1.2bn in 2005 while the EU's were very modest at EUR200M. 

EU Impact

The biggest impact of a FTA on the EU grain sector would be on trade, with a slight decline of 0.4% in grain exports and a 0.8% rise in imports foreseen. As a result of the increased imports, mainly rice and wheat, some farms could lose income notably in regions where many small farms are active, the report warns. No adverse environmental impacts for this sector have been found.

There will nevertheless be potential gains for EU industry in harmonising Sanitary and Phytosanitary (SPS) standards with India, with increased market access for processed food foreseen, the report claims. The EU has some of the highest SPS standards in the world. India's standards, although improving, have a long way to go.

India Impact

For Indian exporters, the main gains are expected in exports of raw agricultural materials and primary products. An FTA is estimated to cause a decline of between 3 to 4% in India's grain imports in the short-term, but an increase of between 1 to 5% is predicted in the long-term, the report says. India's exports are estimated to climb by 6% in the short run and by between 0.3% and 1.5% in the long run, the report adds. India's trade balance is expected to improve in the short-term, as a result of the higher exports and reduced imports, the report claims.

The combination of the rise in exports and slight increase in output in the food grains sector could help farmers' real incomes to climb in the long-term. The social and environmental impacts are expected to be minimal, the report adds.

 

18/12/2008

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