Why India must shrug off protests at WTO about public stockholding of food | Latest News India - Hindustan Times
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India must shrug off protests at WTO about public stockholding of food. Here’s why

Mar 12, 2024 09:44 PM IST

Public procurement at administered prices to support farmers is how India ensures food security. As per the WTO, however, such practices are “trade-distorting”

Before the 13th Ministerial Conference of the World Trade Organisation (WTO) began in Abu Dhabi in February 2024, the European Union (EU) trade minister Valdis Dombrovskis published a written statement to member nations. He pressed the importance of the organisation in an uncertain and geopolitically fragile world and plugged a statistic—three-quarters of world trade still takes place on WTO terms. “So, let’s roll up our sleeves and turn this into the success story that the WTO – and global trade – needs right now,” Dombrovskis wrote.

Delegates attend the 13th World Trade Organisation Ministerial Conference in Abu Dhabi of February 26, 2025. The world's trade ministers gathered in the UAE on February 26 for a high-level WTO meeting with no clear prospects for breakthroughs, amid geopolitical tensions and disagreements. (AFP) PREMIUM
Delegates attend the 13th World Trade Organisation Ministerial Conference in Abu Dhabi of February 26, 2025. The world's trade ministers gathered in the UAE on February 26 for a high-level WTO meeting with no clear prospects for breakthroughs, amid geopolitical tensions and disagreements. (AFP)

High on the conference’s agenda was to find a solution for the long-pending issue of public stockholding of food.

In 2007 and 2008, food prices rose dramatically at a time when global food reserves were at their lowest, affecting the food security of hundreds of millions of people in poor and developing economies. This pushed governments to maintain huge public stocks of food grains. In 2013, at the ministerial conference held in Bali, India pushed to exempt public stockholding from WTO subsidy limits.

“Public procurement at administered prices is often the only method of supporting farmers and building stocks for food security in developing countries. The need for public stockholding of food grains to ensure food security must be respected. Dated WTO rules need to be corrected,” Anand Sharma, India’s then trade minister, said in his address in Bali. Months before the conference, the Congress-led United Progressive Alliance government had passed the National Food Security Act, ensuring access to subsidised food grains to two-thirds of India’s population.

According to the WTO’s Agreement on Agriculture (AoA) — which took effect when the WTO was established on January 1, 1995 — all trade-distorting subsidies fall into what it calls the Amber Box, while those that do not distort trade fall under the Green Box. Domestic support like India’s minimum support prices (MSP) and other production-related support are considered trade-distorting, and hence, fall in the Amber Box category.

Under the agreement’s provisions, the aggregate value of support for Amber Box subsidies should not exceed 5% of the total value of production of any agricultural produce. However, for developing countries such as India, the threshold is 10%. For the Green Box category, there are no limits, because the WTO allows cash transfers for all non-production-related support. Rich countries can provide unlimited cash transfers to their farmers, while poor countries cannot afford to do so.

After the conference ended in Abu Dhabi on February 29, Dombrovskis expressed disappointment. Without taking names, he blamed India for blocking any resolution over public stockholding of food. Additionally, the Thai ambassador to WTO charged India with capturing export markets through its public stockholding program, to applause from other diplomats. India pushed back, saying that it would only accept a “permanent solution” to the issue of public stockholding for food security purposes.

For instance, India’s government procures rice from farmers at a fixed price, called the MSP, which the WTO classifies as a subsidy and considers to be distorting trade. The stock that the government procures is meant for domestic consumption, and if it makes its way to international markets through exports, it gives India an unfair competitive advantage in trade, per current WTO rules.

In the past, India has forced a peace clause at the WTO, which allows countries to freely procure and stock grains for public distribution, even if subsidies breach limits under the Agreement on Agriculture. In 2021, India invoked the peace clause at the WTO for the second time, after it reported that it provided subsidies worth $6.31 billion to its rice farmers, or 13.7% of the total production value, as against the permitted 10%.

Public stockholding needed for food security

At the WTO, India has cited the rising number of farmer suicides, crop failures, financial distress and food security as grounds for providing MSP to farmers for public procurement and stockholding.

During the Covid-19 pandemic, Prime Minister Narendra Modi announced an additional free food scheme, the Pradhan Mantri Garib Kalyan Yojana, which includes 5 kg wheat or rice and 1 kg of preferred pulses for poorer households every month, in addition to the subsidised grains distributed under the National Food Security Act. This meant that India’s markets were flush with food grains sourced from its MSP-procured public stocks.

The problem arises when food grains meant for the domestic market are exported and that is what the United States and the Cairn group of countries, which includes Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, and Peru, have repeatedly accused India of doing.

“India provides a minimum support price to non-basmati rice. Basmati rice producers do not get any price support. During the pandemic, exports of non-basmati rice actually went up. [However] this is our stance at WTO: the subsidies that we provide are for food security and rural livelihoods,” Biswajit Dhar, a trade expert and professor at the Centre for Economic Studies and Planning in Jawaharlal Nehru University in New Delhi, said.

India’s export of non-basmati rice grew about 360% from 1.38MMT in FY2020 to about 6.40MMT in FY2023. At the same time, India became the top rice exporter — including both basmati and non-basmati varieties — accounting for about 40% of the global rice trade in 2022. India exports non-basmati rice varieties such as white rice, broken rice, parboiled rice and husked brown rice.

The Indian Council for Research on International Economic Relations (ICRIER), a New Delhi-based think tank, in an analysis published in September 2023 reported that the surge in non-basmati rice exports in the last three years could have been owing to leakages from its expanded free food programme during the pandemic. In December 2023, Food Corporation of India (FCI) chief Ashok K Meena urged private traders to buy rice and wheat that the government was selling under its Open Market Sales Scheme (OMSS), which it conducts in order to bring down inflation. However, the grains sold under OMSS are procured at MSP for the government’s public stockholding programme.

“Once you do OMSS, there is no guarantee that the grain will stay in the country. There is a possibility that it may get exported even if domestic prices remain elevated because international prices are better. There will be leakages from the system. And we know that the PDS is not run in an ideal way. And then the government is providing free food grains to more than 80 crore people. When you add these up, you get a feeling that there could be some problems. Year after year, you have the same number of beneficiaries,” Dhar said.

The recently released Household Expenditure Consumption Survey (HECS) showed that Indians were consuming less cereals. Last November, the Centre extended the free food scheme for five more years.

“This is a contradictory narrative,” Dhar said, adding that this creates anxiety among other nations. “The problem is that the government is not able to report whether rice from public stocks is reaching the international market. We are saying that nothing is happening. And this is where the questions are arising.”

Is there a permanent solution?

India has maintained that it won’t agree to anything but a “permanent solution” to the issue of public stockholding, which, according to Dhar, would be to either update the External Reference Price (ERP) period or allow India to factor in inflation in its subsidy calculations.

Let’s examine both options.

ERP is the export or import price of an agricultural product during the base period, which, in the current WTO methodology for calculating subsidies, is 1986-1988. This means that India’s current MSP for every crop is compared to an average international price during 1986-1988, of about $262 per tonne even as current international prices remain higher.

“The measure of subsidies we provide has to be compared to an international price. That's the closest you can come to a competitive price, but at the same time, you can’t compare subsidies to a 40-year-old historical price. This does not make any economic sense,” Dhar said.

The other way would be to allow countries like India to factor in inflation in their subsidy calculations, according to Dhar, because, unlike developed countries, India has experienced high consumer inflation since 1986. If the WTO were to allow inflation adjustments in its methodology, the amount of subsidy India provides for every tonne of rice or wheat would come down, shielding India from any trade violation and allowing for room for providing support to farmers.

However, the United States has opposed any changes to the methodology while the country provides direct cash transfers to subsidise its farmers, which is allowed under WTO’s Green Box subsidies. Developing countries have protested that Green Box subsidies are indeed trade-distorting and discriminatory.

In January this year, before the conference began in Abu Dhabi, the US declined to support India’s call for a permanent solution, which a senior trade official described as “Washington’s point-blank refusal.” “A permanent solution for us is to change this methodology. [Because] we can't go to the WTO and renegotiate the agreement wholesale,” Dhar said.

After the conference ended in Abu Dhabi, commerce minister Piyush Goyal told reporters in New Delhi that he was completely satisfied with the outcome. He said that India would procure and distribute food grains among the poor uninterrupted and without any hindrance. “We have not lost out on anything,” Goyal said.

Rohit Inani is a New Delhi-based reporter. The views expressed are personal

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