Food for thought

Updated on: May 27, 2018

US assertiveness on India's food subsidies should be resisted

In a less noticed move, the US earlier this month submitted a petition to the WTO, once again arguing that India’s agriculture subsidies exceeded WTO-specified limits. The move smacks of bad faith and flawed reasoning. In November 2014, the Modi government got the WTO General Council to agree that public stock-holding for food security would not be challenged until a ‘permanent solution’ was arrived at. The pact reversed the decision taken at the December 2013 Bali Ministerial that only promised a temporary reprieve to price support programmes. However, the US has not kept its side of the deal. It has been stonewalling efforts to arrive at a permanent solution to public stock-holding. At the December 2017 Buenos Aires Ministerial, the developed world distorted the agenda by introducing a range of new issues. An open discussion on public stock-holding would have worked to the advantage of large farm producers such as India, China and Thailand and, in fact, highlighted the market-distorting farm subsidies of the developed world. It is clear that the Trump administration is going all-out to prise open world markets and protect its own producers. Its disregard for multilateral rules has increased.

India’s procurement programme can be defended on a number of grounds. First, India’s small and marginal farmers, who account for the bulk of all agriculturists, are exempt from subsidy reduction commitments under Article 6.2 of the WTO’s Agreement on Agriculture. Second, as India and China have argued in a joint paper released last year, the developed world benefits from an overall farm subsidy ceiling of 5 per cent on farm output, as against a product-specific cap of 10 per cent on the produce of developing world. Under the guise of an overall cap, the former is able to extensively support some crops more than others. A product-specific cap may lead to an overestimation of input subsidies that are not crop-specific. Third, product-specific price support is based on the difference between the prevailing price and an ‘external reference price’ (ERF) based on 1986-88 prices. Apart from the ERP being outdated, the subsidy is calculated in the domestic currency rather than the dollar. Depreciation of the former exaggerates the subsidy. The developed world subsidises its farmers generously, and indeed distorts world markets, by masking its subsidies under the ‘blue box’ and ‘green box’ categories. The former is considered ‘minimally distorting’ as it deals with curtailing production, whereas the latter is deemed ‘non-distorting’ as it covers various income support. A debate on a ‘permanent solution’ to public stock-holding should lead to a more transparent system.

That said, India should consider prioritising income support over price support. The demand for a ‘pay commission’ of sorts for agriculturists, raised by farmers’ organisations, is not without merit. We could redesign the food subsidy bill, but on our terms alone.

Published on May 27, 2018

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