At its next Ministerial, a new subsidy reference price and allowing transfers from public stocks are issues that should be flagged
Ukraine and Russia accounted for about 30 per cent of the global wheat export, which has stopped completely because of the war. India, a minor exporter of wheat since 2016, has also had a bad crop, compelling it to impose export restrictions.
Added to these supply side problems are the twin problems of rising oil prices and global inflation, which have together contributed to the current wheat prices ruling at prices more than 50 per cent higher than a year ago, with a global food crisis looming large on the horizon. How is the WTO planning to address the issue in its 12th Ministerial Conference (MC12)?
To answer this question we have to go back a little in time. In order to provide food to its citizens, India had resorted since 1965-66 to building up public stockholdings (PSH) of food by guaranteeing farmers a minimum support price (MSP) for a crop. The stocks procured at MSP, are sold through the public distribution system (PDS) at subsidised rates.
Currently, public stocks in India provide food to approximately 800 million people under the National Food Security Act (NFSA) and the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) and other schemes. Public stocks have played a very important role during the Covid crisis in preventing starvation deaths and providing food to the needy.
Many other WTO members such as China, Indonesia, Bangladesh, Egypt, Jordan, Pakistan, Kenya and Zambia also procure foodgrains at MSP like administered prices to ensure food security and safeguard the interests of poor farmers. The PSH has been an effective tool in developing countries to fight hunger, especially when the number of food-insecure people is expected to rise because of the current global food inflation.
The problem at the WTO
Price support backed PSH programmes have been frequently questioned at the WTO due to the inequitable and outdated rules of the WTO Agreement on Agriculture (AOA) signed in 1994. The rules that were meant to prevent the Market Price Support programme of the European Union (EU) from producing “mountains of butter and lakes of wine” that distorted the international market, have now come back to haunt the developing countries which are using the MSP.
The AOA stipulates that most developing members, including India, cannot give more than 10 per cent of the value of production (VoP) as a “subsidy” for a product, whereas many developed members have the flexibilities to give support to more than 100 per cent of the VoP for many products, due to their entitlements obtained under the AOA.
The ostensible “subsidy” is calculated by subtracting from the current MSP, the fixed external reference price (FERP), without any inflation adjustment, which was the average 1986-88 export or import price. The current MSP for wheat being ₹20.15 per kg while the FERP remains ₹3.54 per kg, the subsidy per kg comes to a preposterous ₹16.61 per kg. If we make a simple inflation adjustment, the subsidy gets deep in the negative region. Though there is an explicit provision for inflation adjustment in Article 18.4 of the AOA, some members have questioned it by arguing that it is not the right of a member to consider inflation in its calculations. If a developing country crosses its permissible limit, other WTO members can raise a dispute to remove or modify the measures like MSP through which the support is given.
More than two decades ago, negotiators from developing countries realising this challenge tried to secure adequate policy space to implement PSH programmes for food security purposes, which became an important issue in the WTO Doha Round negotiations.
At MC9 in Bali (2013), WTO members agreed on an interim solution which allows developing countries to invoke a peace clause to protect their PSH programmes from legal challenges, even if they provide support beyond the permissible limit. The clarificatory decision by the WTO General Council in 2014, endorsed at the MC10 in Nairobi (2015) allows the peace clause to be available in perpetuity, till a permanent solution is negotiated.
The significance of this decision is evident as India could procure rice at the MSP without any legal challenge despite providing support beyond the 10 per cent limit during the last three years. However, the peace clause is limited in its scope and coverage and has onerous transparency and safeguard conditions.
The issue at MC12
From the perspective of a majority of developing countries, any permanent solution should be broad in scope and coverage with less onerous transparency and safeguard conditions than the existing peace clause.
However, a few food exporting WTO members are objecting to such demands by proposing onerous conditions for a permanent solution, the most important ones being: (a) not allowing exports from PSH stocks; (b) linking the PSH issue with concessions in domestic subsidy negotiations; and (c) dividing the global South by granting differential and limited flexibility for LDCs, net-food importing developing countries (NFIDC), and other developing countries.
In MC12, more than 80 developing members have demanded, among other things (i) updating the FERP based on either inflation adjustment or using recent trade data; (ii) coverage of more crops in future PSH programmes; and (iii) allowing exports from PSH for humanitarian purposes.
Ignoring this long-standing demand from developing countries representing more than 60 per cent of the world population, especially in the context of a looming global food crisis, puts a serious question mark on the credibility and relevance of the WTO in the global fight against hunger.
Dasgupta is a former Ambassador of India to WTO, and Sharma is an Associate Professor at the Centre for WTO Studies, IIFT. Views expressed are personal
Published on June 07, 2022