The WTO is destroying Indian farming

Devinder Sharma

The double standards are clear. In 2012, the US provided $100 billion for domestic food aid, up from the $95 billion it spent on feeding its 67 million undernourished population in 2010 including spending on food coupons and other supplementary nutrition programmes. In India, the Food Bill is expected to cost $20 billion and will feed an estimated 850 million people. Against an average supply of 358kg/person of subsidised food aid (including cereals) in the US every year, India promises to make available 60 kg/person in food entitlement. And yet, while the World Trade Organisation (WTO) is quiet on the subsidy being doled out in America for feeding its poor, the US has launched an attack on India for “creating a massive new loophole for potentially unlimited trade-distorting subsidies.”


India’s subsidies for feeding its hungry are being blamed for distorting trade in agriculture while the US, which provides six times more subsidies than India for feeding its hungry, is seen as doing humanitarian service. The US subsidies are unquestionable, while India’s hungry are being conveniently traded at the WTO. Public posturing notwithstanding, India is believed to have given in to US pressure. Commerce minister Anand Sharma is believed to have assured the WTO director-general that India is committed to take the multilateral trading regime to its logical conclusion. That India is not willing to contest the unfair provisions, and has agreed to a compromise, becomes evident from what the WTO chief said: “What we have agreed in Geneva is we are going to be working on a Peace Clause.”

The US/EU is pushing for a Peace Clause lasting two-three years. India is willing to accept it since it allows the food security programme to continue without any hiccup till 2014. The Peace Clause is a temporary reprieve. Although it expired in 2003, it is being reinvented now to allow India to continue with its food subsidies for the specified period during which its subsidies cannot be challenged before the WTO dispute panel.

The main issue here is the increasing amount being spent on public stockholding of foodgrains and thereby the rise in administered prices for wheat and rice that is procured from small farmers. According to the WTO Agreement on Agriculture, the administered price cannot exceed the ‘de-minimis’ level of 10% of the total volume of production. This exemption is allowed under the Aggregate Measure of Support. India has already exceeded the limit in the case of rice where the procurement price has shot up to 24% from the base year 1986-88 that was agreed upon.

It is, therefore, not the food subsidy Bill that is under the radar, but the procurement price system in India which is now on the chopping block. If India is forced to limit the rice procurement price at 10% of the total production, and refrain from increasing the wheat procurement price in future, it will sound the death knell for agriculture. Agreeing to a Peace Clause only shows how India is trying to skirt the contentious issue and is ready to sacrifice the livelihood security of its 600 million farmers.

According to the US-based Environment Working Group, America had paid a quarter of a trillion dollars in subsidy support between 1995 and 2009. In the 2013 Farm Bill, these subsidies have been further increased. This results in the dumping of foodgrains, thereby dampening farm gate prices, and pushing farmers out of agriculture. In India, wheat and rice growers have merely received $9.4 billion as procurement price in 2012. Forcing India to freeze procurement prices means that the WTO is being used to destroy Indian agriculture.

Transfer of the nodal point of fertiliser subsidy has companies and retailers nervous

Vijay Thakur (name changed) is a worried man. This fertiliser wholesaler in Karnal, Haryana, buys subsidised fertiliser from companies and sells it to retailers in this agricultural district about 120 km north of Delhi. It is a steady, if not hugely profitable, business. Thakur fears that might change this year.

He is jittery about a government plan that will, in three phases, redirect the fertiliser subsidy from companies to retailers and, eventually, to farmers. He’s not worried about the eventual objective, cash transfers to farmers. His immediate worry are phases one and two, which are being operationalised this year.

These two phases make wholesalers and retailers the key piece in the subsidy chain. Phase one started on January 1, with the fertiliser ministry striving to electronically track every kg of fertiliser till it is eventually sold. So, wholesalers like Thakur and retailers will have to submit data on their sales and stocks to the ministry every day.

This information-collection system is a prelude to phase two, expected in June, when wholesalers and retailers will buy fertilisers at unsubsidised rates. And only after they inform the government about this purchase, either online or through SMS, will the government deposit the subsidy into their bank accounts. “My fear is 1% retailers will be ready for this,” says Thakur, who did not want to be seen to be antagonising the fertiliser ministry, which controls subsidies, and so declined to be named.

A fair degree of scepticism runs through even among those who know about the new system. “Who will put in money now and wait for the government to reimburse?” says the head of a fertiliser retailer association in North India, who too did not want to be named for the same reason. “Even if they (the government) initially put in the money on time, what is the likelihood they will continue to?”


It’s certainly in the government’s interest to do so. In 2008-09, when oil prices peaked, the government shelled out about Rs 100,000 crore as fertiliser subsidy — with little accountability. So, the subsidy went to all farmers, rich and poor, big and small. It covered all costs of companies, regardless of how profligate. Cheap fertiliser was hoarded or illegally diverted to neighbouring countries or used in other industries like plywood, resulting in farmers complaining about insufficient supply.

These are the reasons why the government wants to track fertiliser movement and eventually target the subsidy. In 2007, the ministry of chemicals and fertilisers introduced a fertiliser management system (FMS), a sort of countrywide ERP software that tracked fertiliser movement from factories to company warehouses in districts.

Beginning January 1, a new system, called the mobile FMS seeks to extend the tracking beyond the 30,000 warehouses, to all 230,000 licensed retailers. “The government will know what stocks lie where,” says Ajay Bhattacharya, secretary, ministry of chemicals and fertilisers.

Now, it will be on record that a retailer has received, say, 10 tonnes of fertiliser. If he tries to siphon it off by claiming it has all been sold, an inspection can reveal the truth.