WTO rules on domestic support and food security

This article on WTO Rules on domestic support has been developed based on the Indian Express Editorial “The food security bargain”.

Context: Present  World Trade Organization WTO rules are not in to support food security and rural livelihoods in India and around the world.

With the initial results of National Family Health Survey (NFHS-5) between 2015 and 2019, it has become apparent that nutrition level in India is deteriorating. In these circumstances it has become a necessity for India to further strengthen its food delivery mechanism for the poor and vulnerable sections of the society.

Read more about NFHS survey – Implications of NFHS-5 survey results

But WTO rules and their discussion are creating hurdles in furthering food security programs in India and other developing nations. Farm subsidy notification

There is widespread consensus that the World Trade Organisation (WTO) rules should provide a necessary support for food security and rural livelihoods. 

Read – WTO Agreement on Agriculture

What are the issues in WTO’s rules?

WTO rules on domestic support to agriculture, at present looks tilted in favour of developed countries. In 2018, during global trade war escalation US claimed India’s market price support (MPS) was above the permitted 10 per cent limit as per ‘de minimis provision’. US Economist Franck Galtier also pointed out 3 biases in the WTO rules;

1. Firstly, using external reference price” (ERP) instead of present data. WTOs External Reference Price or ERP, for calculation of market price support (MPS) limit is set at 1986-88 level, even after global price hikes of 2007-08 and 2010-11.
2. Secondly, using procurement (administered) price, instead of domestic market price for calculation of support received by farmers.

3. Third, using total production instead of actual procurement. There is no clarity on whether to country’s food grain production or the amount that has been procured by government. While India uses just the amount of grains procured by the government, US using total production of rice and wheat to raise its objections.

Other than above biases, there are other concerns of India as well.

4. Fourth, US computes the MPS using the rupee as the currency while India calculates the value in dollar terms.
5. Fifth, Majority of the agri. Subsidies by developed countries have been listed in the green box, as non-distorting. For Ex, 88% of farm subsidies by US has been listed in green box, resulting into increase in its farm subsidies from around $61 billion in 1995 to $139 billion in 2015. 

Biswajit Dhar, professor at JNU, has rightly pointed out, “US has been subsidising its corporate agriculture to capture global markets while it targets the subsidies India gives to an overwhelmingly large share of small and marginal farmers.”  

If domestic market prices are compared with international market prices using the Producer Support Estimate methodology applied by the Organisation for Economic Cooperation and Development (OECD), India’s support, turns out to be negative for the years since 2000-01.

Thus, there is a need for updating the rules so that it becomes more relevant considering the present global realities and requirements by incorporating following suggestions;

1. Firstly, the reference period for price calculation should be updated to an average of 2014-16 or 2016-18 price levels.
2. Secondly, support consumed by subsistence farmers themselves, instead of selling in the market MSP, should be excluded from the calculations.
3. Third, India has recently pitched for a new criterions based on the “support per farmer”, instead of Aggregate Measurement of Support (AMS).
4. Fourth, a differential criterion should be developed for the countries having deteriorated social and health conditions so that they do not have to choose between the health of their people and export ban on them.

With the regime change in US, there are possibilities of increasing US involvement in WTO. Thus, to make it more meaningful, its rules should be updated so that it becomes more appealing and inclusive for the countries participating in it.