Farm products represent tricky terrain in India-US trade talks

There is hardly any possibility of import of liquid milk from the US but high value milk products, consumed by a tiny section of Indians and possibly expatriates, provide a window of opportunity to US for export of dairy products.

Now that the Israel’s attack on Iran and subsequent flare up in which Israel, Iran and US traded bombs and missiles, has come to some kind of truce, economic realities of trade may again find a place in headlines. The good news is that on 26th June, US and China signed a trade deal under which the U.S. tariffs on imports from China will be 30 percent while the Chinese tariffs on import from the US will be 10 percent.

The big question now is will India also offer lower tariffs to US.

In just about a week’s time, on 8th July 2025, the 3-month pause announced by the US to impose reciprocal tariffs will come to an end. If this deadline is not extended, Indian goods exports to US will face an average of 26 percent tariff. India is not alone in this. The deadline for reaching an agreement with the EU is also 8th July.

In the past, the US President has backed out from imposing such high tariffs, perhaps for fear of high inflation. Due to constantly changing postures of US, it would be very challenging for India to negotiate a trade deal by 8th July. However, an interim arrangement, leading to a further pause in imposition of reciprocal tariffs is quite possible.

Niti Aayog argued for lower tariff on agriculture imports from US

India charges an average 37.7 percent tariff on US farm products while US charges 5.3 percent on Indian exports to US. Bilateral trade is about $8bn but there are substantial challenges in significantly increasing US agriculture products’ import into India.

The complexity of challenge on agriculture negotiations is evident from the fact that Niti Aayog had to withdraw its working paper – Promoting India-US Agricultural Trade under the new US Trade Regime.

The paper based its conclusions on two assumptions. First, that India will produce reliable surpluses of agricultural produce for which it will require foreign markets. Second, that the US will remain big market for export of agriculture and food surpluses. For enabling exports, the paper argued, India must consider strategic opening of import of agricultural products from the US. It was suggested that India should consider lowering tariff on soybean (even if it is genetically modified), dairy products, poultry, corn by-products, and even rice.

Indian agriculture has to feed 1.7 billion people

The events of the last four years have shown that Indian agriculture is highly vulnerable to climate change and in years of erratic monsoon, agriculture production can go down. In fact, India had to restrict or ban export of wheat, wheat products, broken rice, non-basmati raw rice, sugar and onion.

Even if the growth rate of population has been going down to below replacement level, India’s population will continue to rise till 2060s. As per the World Population Prospects 2024 report, published by the United Nations Department of Economic and Social Affairs (DESA), India’s population will peak at 1.7 billion in early 2060s. Though it is projected to decline after that, even by 2100, India is projected to have a population of 1.5 billion. So, domestic food security will remain a matter of strategic importance to Indian policy makers. India’s average landholding is also likely to further decrease from existing level of 1.08 hectare and climate change may have an adverse impact on yields.

With its exports to China going down, US looks for export to India

For the agricultural exports from the US, China has been a big market. It imports large quantity of soybean, oilseeds and grains. Soybean is mostly used for animal feed. If we take a longer view, Brazil’s exports of soybean to China have grown by more than 280 percent since 2010 while US exports have remained flat. So, the US is looking for alternate market for its soybean, 96 percent of which is GM (herbicide tolerant).

Last year, Indian soybean farmers realised just about Rs 4,000 per quintal while the MSP was Rs 4892 per quintal. If India lowers duty on US soybean, about 11 million Indian soybean farmers may see crash of prices which will further impoverish India’s already poor peasantry in rainfed regions.

India’s soybean productivity has stagnated around 1 tonne per hectare for decades. With increasing irrigation cover and research in seeds, India can raise its yield and produce more soybean to meet its requirement of oil and meal. So, import of GM soybean may not be an ideal policy choice. A better option will be to allow research for developing higher yielding soybean varieties by using GM technology.

Dairy products – restrictions under sanitary and phytosanitary (SPS) standards

Another area of concern is the pressure US may be exerting on India for export of its dairy products. Indian regulations require that the source animals should have never been fed with feed produced from meat or bone meal. US argues that such restrictions are not consistent with commitment at WTO. Even in India–Australia Economic Cooperation and Trade Agreement (ECTA), which came into force on December 29, 2022, India did not agree to liberalise import of dairy from Australia.

There is hardly any possibility of import of liquid milk from the US but high value milk products, consumed by a tiny section of Indians and possibly expatriates, provide a window of opportunity to US for export of dairy products. It is possible that India may agree to lower tariffs for such products. A similar level of tariff may then have to be offered to Australia also in ongoing negotiations of Comprehensive Economic Cooperation Agreement (CECA).

Conclusion

To save India’s goods and services exports, Indian negotiators may have to offer lower tariff on alcohol, almonds, avocados, olive oil, raisins, walnuts, alcohol and wine.

Due to diversion of maize to ethanol for vehicles, India has become an importer of maize. In 2023-24, 7.5 million tonnes of maize was diverted to ethanol.  Since feed industry’s main raw material is maize, India had to import 9 lakh tonnes of maize in 2024. So, it is quite possible that US would be pushing for import of ethanol from US, if maize itself cannot be imported as US maize is GM.

In view of complexity of negotiations, it is possible that India and US may sign an interim agreement. The flip side is that the EU, Australia, New Zealand and other countries would also demand similar tariffs in their negotiations with India.