In run up to WTO ministerial at Bali (December, 2013), G-33 developing countries, led by India have sought ‘flexibility to continue helping poor farmers through support prices without a limit on subsidy’.
This has been promptly rejected by USA on the ground that this will tantamount to altering rules of the game. US stance was echoed by Mr Pascal Lamy, DG, WTO. The rejection is without basis!
Under Agreement on Agriculture (AoA) (1995), support to poor farmers was ‘excluded’ for calculating aggregate measurement support (AMS) and deciding subsidy reduction commitments with reference to 1986.
The raison de atre for this exclusion was that support to poor farmers does not have any ‘trade-distorting’ effect, whereas WTO disciplines target only those forms of support which produce such effect.
Agriculture in developing countries has preponderance of resource poor/small & marginal farmers. In India, they account for 85% or 117 million out of a total of 138 million farm households.
A majority of them are ‘subsistence’ farmers producing food for self-consumption. Their produce does not even enter supply chain. Others with marketable surplus barely earn a living with sale proceeds.
This fundamental reality was recognized during Uruguay Round and duly embedded in AoA. The number of poor farmers has since increased (by 25 million in India during 1995 to 2010).
Far from re-writing rules, G-33 group is only asking for continuation of what was already there. They must not allow themselves to be bulldozed by developed countries.
Subsidy implications of Food Security Act (FSA) seem to have put Indian policy makers in a tizzy. They feel that this could invite action under WTO & hence, seeking a re-assurance.
The apprehension is without any basis. FSA ‘guarantees’ supply of 5 kg of cereals per person per month at Rs 3 per kg rice, Rs 2 per kg wheat & Rs 1 per kg coarse cereals to 67% of India’s population.
By mandating sale of food grain under PDS/FSA at a price below cost of production & distribution, Govt is actually subsidizing consumers of food grain & not farmers.
FSA would entail huge subsidy pay out of Rs 200,000 crores annually (as per an estimate by Ashok Gulati). But, that must not be mixed up with our WTO commitments.
As per WTO methodology, farmers are subsidized if price paid to them for their produce is higher than international price. Be it wheat or rice, surely, Indian farmer does not get more.
In 1986, ‘product-specific’ subsidy given by India was hugely negative 38% of value of agri-production. Then, our farmers got much less than international price.
AMS also includes ‘non-product specific’ subsidies/on agricultural inputs e.g. fertilizers. This arises when farmer pays less than international price for inputs. This was 7%.
Under AoA, developing countries were required to undertake reduction if AMS was more than 10% of value of agri- production also known as de minimis level.
The commitment was to reduce AMS by 13.3% over a 9 year time frame. Since, already our AMS at minus 31%, was much below de minimis, India was not required to undertake any reduction.
For developed countries, de minimis limit was 5%. The reduction commitment for them was 20% over 5 years. That was a farce, when seen in backdrop of very high support given by them in 1986.
For OECD countries, AMS in that year was 52%. Even after 20% cut, actual support would still be 42% – 8.4 times de minimis fixed for them & 4.2 times level allowed for developing countries!
Ironically, developed countries did not honour even these ‘token’ commitments. OECD countries brought down support from 52% in 1986 to 42% in 1997 only to be raised to 55% by 1999.
For more than a decade, progress in Doha Round is stalled primarily due to wrangling between USA & EU over subsidies. Neither side is willing to scale down their high support.
In this backdrop, for them to object to developing countries continue their support to resource poor farmers is totally unfair, inequitable & discriminatory. This must be resisted tooth and nail.
Instead, G-33 should goad developed countries to bring down their AMS to 5% de minimis level within 5 years. They should also be persuaded to lower their export subsidies & import tariff to pre-fixed targets.
For developing countries, 10% de minimis may continue. However, to ensure that our AMS remains within this limit, Government needs to take steps to trim subsidies on agri-inputs.