A pound of flesh to feed the poor: WTO and Indian Food Security Bill

Realising that New Delhi needs to clear its food security legislation at the WTO in time for the election, the West has sought increased market access in return for temporary relief
A few months ago, the most optimistic observers of international politics were not willing to hedge their bets on the Doha Development Round at the World Trade Organisation. The Doha Round negotiations have been stalled for more than a decade now — the West would like developing countries to remove import barriers while India, Brazil and China want the United States and the European Union to reduce the massive subsidies they provide to rich farmers.Neither side has conceded ground on its claims. But at the Bali Ministerial Conference this December, the U.S. will use a trump card to have its way with India and other emerging markets: our food security legislation. On the pretext of “allowing” India’s food security law to exist alongside its commitments to the WTO, the U.S. has wrested an in-principle agreement from New Delhi on the issue of “trade facilitation.” In other words, India has agreed to greater market access for western companies in order to ensure the survival of the Food Security Act.
‘Import facilitation’
Late last year, India’s Permanent Representative to the WTO in Geneva went on record to say “trade facilitation […] is nothing but import facilitation.” The overall gain for developing countries from such additional trade will be “next to nothing,” said Ambassador Jayant Dasgupta. He also acknowledged that the West had fallen back on its promise to help improve the export capability of emerging markets. The whole mantra of trade facilitation, Mr. Dasgupta went on to observe, was “[…] please open up [your markets]. Don’t ask for anything in return. It’s good for you.”
Yet, last week, Union Trade Minister Anand Sharma suggested “there should not be any confusion on trade facilitation because we are in favour (of the same).” What changed in the course of a year? The United Progressive Alliance, desperate to ensure that the Food Security Act does not fall foul of India’s commitments under the WTO Agreement on Agriculture (AoA), has curried favour with the Obama administration. The U.S. — which runs one of the largest domestic food aid programmes in the world — has steadfastly opposed plans by developing countries to provide food security to their poor. Now it is using the AoA to push its objectives under the “trade facilitation” agenda at Bali. During his recent visit, Prime Minister Manmohan Singh sought to extract an assurance from President Barack Obama that the U.S. would not oppose India’s food security scheme. Mr. Sharma’s remarks themselves came after WTO Director-General Roberto Azevedo casually observed that the Food Security Act may run into trouble with our AoA commitments.
Room for concern
But the government’s piecemeal attempt to resolve this issue bilaterally (with the U.S.) leaves much room for concern. For starters, the Obama administration is driving a hard bargain: there is no reason why the UPA should trade food security for market access, because India has a legitimate case under the AoA. Second, without an amendment to the AoA, any ad hoc solution is subject to the whims of U.S. foreign policy. The UPA seems content to see the food security scheme just through to 2014, in time for the election. Third, abandoning the case of the developing world to shore up its own food security law will reflect poorly on Indian diplomacy.
The proposal to categorise higher-than-normal procurement prices — for the purpose of ensuring food security — as a permitted agri-subsidy was mooted by the G33 last year. The G33 proposal was based on a simple premise: food security schemes needed massive quantities of grain and farmers had to be offered attractive prices if they were to sell their produce to governments. But the WTO Agreement on Agriculture unfairly casts such procurement prices as “trade-distorting.”The WTO imposes a cap on the price support that countries can provide for an agricultural product, known as the “Aggregate Measurement of Support (AMS).” Mathematically, AMS is the difference between the procurement price and a “fixed, external reference price” for a product, say rice, multiplied by its total domestic production.
The AMS rule is patently unfair because the “external reference price” is pegged to 1986-88 levels. There is abundant literature to conclude world food prices were low during the late 1980s on account of massive dumping of food grain by U.S. and European companies on foreign markets. It is farcical to expect developing countries — whose agricultural sectors were no doubt adversely affected by dumping — to base their support for farmers on such manipulated prices.
What’s more, market price support in itself is no effective marker of trade protectionism. Jacques Berthelot, a French agricultural economist, has highlighted how the U.S., the European Union and Japan simply slashed their procurement prices on paper during the 1990s without reducing any of the subsidies they grant to rich farmers. In defence, the West has facetiously argued that farm aid “decoupled” from production and instead contingent on a farmer’s maintaining her land in “good condition” is permitted under the AoA. India, on the other hand, has adhered to both the letter and spirit of the AoA, reducing its agri-tariffs progressively. In objecting to India’s food security legislation on account of higher procurement prices, the U.S. has made it clear needy citizens in the West are more equal than others.
Since the AMS rule has found its way to the AoA, however, there is no alternative for the G33 but to negotiate its amendment. For India and other developing countries, the de minimis AMS is capped at 10 per cent of the total value of production. For the most part of the last two decades, as economist Munisamy Gopinath observes, India’s support prices for farmers has been lower than the external reference price. But with the advent of the food security legislation and a general rise in food prices (after adjusting for inflation), there is little doubt that India will breach this ceiling in 2012-13.
‘Re-interpretation’ sought
To prevent this situation, our WTO representatives have sought a modest “re-interpretation” of the AoA annex to peg the “external reference price” from 1986-88 levels to current global prices. The other option, according to Ambassador Dasgupta, is “to have a deflator mechanism to compensate for excessive rates of inflation.” The G33’s original proposal still remains our best shot at ensuring food security. But the UPA government has instead opted for an “interim solution” —– an invocation of the AoA’s “Peace Clause” which entails requesting the West to desist from initiating legal proceedings against India. In other words, this politically tempered proposal is an admission that India’s food security law violates the WTO regulations.
It is unclear whether the ‘Peace Clause’ proposal is supported by all members of the G33. Since India has thrown its weight behind this rarely-invoked measure, the mood at the WTO, as one diplomat told Bridges Weekly, seems to be “that the only game in town for the G33 proposal is a peace clause.” New Delhi’s objective is clear: remove all hurdles that stand in the way of the Food Security Act for now. In its election rush, the government is sacrificing the sovereign right of India and the developing world to provide food to their needy on a sustainable basis. The U.S. has seized this vulnerability to extract concessions on the trade facilitation front. A Faustian bargain, if there ever was one.

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.