Why EU Trade Deal Offers Better Prospects for Indian Farmers Compared to US Agreement

As India prepares to finalize what has been termed the "mother of all deals" with the European Union this week, the agricultural sector remains a critical consideration in trade negotiations. While agriculture has been a major stumbling block in the still-to-be-concluded free trade agreement between India and the United States, experts suggest that a deal with the EU presents different dynamics that could be more favorable for Indian farmers.

The Livelihood Factor in Agricultural Trade

India's approach to excluding agriculture from free trade agreements that open markets through duty reductions and dismantling of non-tariff barriers stems from two fundamental concerns. The first revolves around livelihoods. The United States reported just 1.88 million farms in its most recent 2024 survey, while the European Union had 9.07 million farms in 2020. In stark contrast, India's last Agriculture Census in 2015-16 placed total operational holdings at a staggering 146.45 million.

During the April-July 2025 instalment round alone, 97.14 million land-holding farmer families benefited from the Narendra Modi government's PM-Kisan Samman Nidhi income support scheme. Given this massive population dependent on farming for livelihood, successive Indian governments have exercised caution in granting greater market access to foreign agricultural produce.

The sensitivity of agricultural trade is not unique to India. Even the European Union's interim trade agreement signed on January 17 with four Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – faced significant opposition. On January 21, European Parliament lawmakers voted 334 to 324 to refer the trade deal to the European Court of Justice following protests, particularly in France, where farmers claimed the FTA would lead to increased imports of beef, sugar, and poultry products from South American nations.

Understanding Agricultural Subsidy Disparities

The second critical issue pertains to agricultural subsidies. The Producer Support Estimate (PSE) – representing the annual monetary value of gross transfers from taxpayers and consumers to farmers – reveals significant differences between trading partners. During the three years ending 2024, the EU's PSE averaged $97.3 billion, equivalent to 16.4% of gross farm receipts.

According to Organisation for Economic Co-operation and Development (OECD) data, EU countries provided an average annual support of $58.6 billion to their farmers during 2022-24 through direct and miscellaneous payments alone. An additional $16.2 billion came as subsidies on agricultural inputs, while $22.5 billion resulted from government policies that raised domestic farm gate prices above corresponding border prices.

The United States showed a different pattern, with an average annual PSE of $38.2 billion or 7.1% of gross receipts during 2022-24. This included $22 billion in direct payments, $13.4 billion in input subsidies, and $2.7 billion in commodity output market price support.

India's Unique Agricultural Support Structure

India presents a fascinating case study in agricultural economics. The country's aggregate subsidies on agricultural inputs – including fertilizers, electricity, irrigation water, credit, and farm machinery – averaged $47.9 billion in 2022-24, higher than any of the 54 countries monitored by the OECD.

However, direct income support and miscellaneous payments to Indian farmers through schemes like PM-Kisan amounted to just $7.9 billion, significantly lower than the EU's $58.6 billion and the US's $22 billion. More revealing is the commodity market price support, which showed a staggering negative value of $129 billion for India during 2022-24.

Various domestic stocking, movement, and marketing restrictions on agricultural commodities, combined with periodic export curbs, have depressed farm gate prices in India below their corresponding border prices. This negative commodity price support – essentially representing a net taxation of Indian farmers – more than offset the input subsidies of $47.9 billion and direct payments of $7.9 billion.

Consequently, India recorded the most negative agriculture PSE of $73.1 billion, equal to minus 14.5% of gross farm receipts among all countries in 2022-24. While India's total taxpayer-funded budgetary support for agriculture was higher as a percentage of GDP (2.9%) than that for the EU (0.5%) and US (0.4%), the net taxation of farmers from suppressed prices was estimated to be even higher.

Strategic Considerations for EU Trade Agreement

Ashok Gulati, distinguished professor at the Indian Council for Research on International Economic Relations, emphasizes that the threat of farm imports from the EU differs substantially from that posed by the United States. A free trade agreement with the US could potentially lead to substantial imports of American corn, soybean, ethanol, and cotton into India.

The European Union, by contrast, lacks significant cost competitiveness in most agricultural commodities, with the possible exception of cheese. "Even there, they may want to only supply premium cheese such as Gouda from the Netherlands," notes Gulati. "Apart from that, there could be imports of wine, spirits, or olive oil that wouldn't really hurt Indian farmers."

An FTA with the EU that includes agriculture could actually benefit India in products where it maintains strong export interests. In 2024-25 (April-March), India exported substantial quantities to the EU, including:

Shrimps and prawns valued at $518.16 million
Cuttlefish and squids worth $361.79 million
Coffee exports totaling $775 million
Tea valued at $93.57 million
Grapes worth $175.5 million
Rice exports of $279.34 million
Sesamum seeds valued at $77.66 million
Dried onion worth $75.33 million
Cucumbers and gherkins valued at $57.86 million
Cumin exports of $59.47 million
Turmeric worth $36.82 million

These figures demonstrate that Indian farmers have less to fear from a deal with the EU than with the United States. Gulati adds, "If necessary, we can levy a 15% sterilization duty to neutralize the subsidies that they are giving to their farmers. That should be adequate protection against imports."

The comparative analysis suggests that while both trade agreements require careful negotiation, the European Union deal presents fewer risks and potentially more opportunities for India's agricultural sector. The structural differences in farming populations, subsidy mechanisms, and competitive advantages create a scenario where Indian farmers might find the EU agreement more manageable than a similar arrangement with the United States.