India (G-33) Proposal on Food Security: A wrong move can jeopardize India’s food security forever

One of the key components of the Bali Package which will decide the outcome of the 9^th Ministerial Conference in Bali is the India proposal, on behalf of G-33, on food stockholding for food security purposes. This proposal aims to widen ‘policy space’ by changing the Agreement of Agriculture (AOA)[1] in order to ensure food security of large populations of hungry Indians. This will also allow India’s government to continue procurement of wheat and rice at the minimum support price (MSP) from low-income resource-poor producers (comprising approx. 98.97 percent[2] of India’s farmer population with operational landholdings of ten hectares or less). These poor farmers survive in agriculture because of government procurement of their produce under the food security (public distribution) programme. However, poor farmers and hungry people of developing countries like India are now considered the main hurdles in the successful completion of the Bali Ministerial. Big countries like the U.S. and Canada are not ready to accept G-33 demands to change AOA rules. They are not ready to let developing countries like India to cross its minimum subsidy (de-minimis) limit of 10 percent of the total value of food production as per the external reference price (ERP) prevailing during 1986-88. 

The India proposal states that significant progress has been achieved in the Doha Round negotiations which recognize the serious concerns of food security in developing countries. Food security has become a global concern in the past few years and requires urgent action. It is also asking for some of the elements in the Revised Draft Modalities for Agriculture Text (TN/AG/W/4/Rev.4) of 6 December 2008, relating to food security to be taken up for a decision in the Bali Ministerial in accordance with paragraph 47 of the Doha Ministerial Declaration (DMD). Accordingly, India wants the deletion of the last sentence of footnote no. 5 of paragraph 3 of the AOA Annex 2 on Public stockholding for food security purposes: “For the purposes of paragraph 3 of this Annex, governmental stockholding programmes for food security purposes in developing countries whose operation is transparent and conducted in accordance with officially published objective criteria or guidelines shall be considered to be in conformity with the provisions of this paragraph, including programmes under which stocks of foodstuffs for food security purposes are acquired and released at administered prices, provided that the difference between the acquisition price and the external reference price is accounted for in the AMS (Aggregate Measurement of Support)“. The fixed external reference price was decided at the conclusion of the Uruguay Round. It is the average f.o.b. (free on board- price from farm gate till its delivery on the ship) price that has been notified by a country like India for a product for 1986-1988 and is used as a benchmark for calculating countries’ market price support levels even today. Due to the time that has lapsed, this price is often much lower than the current prices.

This is why G-33 has proposed to delete “the difference between the acquisition price and the external reference price is accounted for in the AMS” and replace it with: “However, acquisition of stocks of foodstuffs by developing country Members with the objective of supporting low-income or resource-poor producers shall not be required to be accounted for in the AMS.

The G-33 proposal further demands that the following should be added in the existing footnote 6 of paragraph 4 of Annex 2 of the AOA. For the purposes of paragraphs 3 and 4 of this Annex, “the acquisition of foodstuffs at subsidised prices when procured generally from low-income or resource-poor producers in developing countries with the objective of fighting hunger and rural poverty, as well as” the provision of foodstuffs at subsidised prices. 

The goal is to meet food requirements of urban and rural poor in developing countries on a regular basis at reasonable prices, which is in conformity with the provisions of above-noted paragraph.

Developing countries like India are still the victims of the biased rules of AOA framed two decades ago as part of a secret deal (the 1993 Blair House accord) between the European Union and U.S. which crafted a multilateral farm deal suited only to developed countries. The deal also gave them enough policy space to continue their huge trade-distorting subsidies in agriculture even today, in one form or another. India, where a third of the world’s hungry people live, fear being dragged into a trade dispute by massive subsidizers like the U.S. and EU if it expands its food security programme under the latest national food security legislation, which may result in crossing the 10 percent limit of the trade-distorting subsidies. Therefore the India proposal, presented by Indonesia on behalf of G-33and proposed at an informal meeting of the Special Session of the Committee on Agriculture on 13 November 2012 (WTO document JOB/AG/22), wants the provisions on public stockholding for food security purposes, already included in the Draft modalities of 6 December 2008, to be taken up for a formal decision at the WTO’s 9th Ministerial Conference in Bali in December 2013. This proposal demands more flexible rules for farm subsidies in the WTO ‘Green Box’—those that are exempt from any ceiling or reduction commitments on the ground that they cause not more than minimal trade distortion.

Biased WTO rules

The key objective of the India proposal is food security and it should be based on procurement of farm produce from low-income or resource-poor producers at government set prices (or “administered prices” which would offer price support to producers, e.g. MSP in case of India). This price support must not count as trade distorting support subject to limits, a “de-minimis” amount of up to 10 percent of the total value of production. If the farm produce for food security programme is procured at the prevalent market price, it will not be counted as trade distorting domestic support [also called as “Amber Box” or Aggregate Measurement of Support[3] (AMS)].

Among the 100 developing countries in the WTO, only 17 have recourse to the AMS while the other developing countries, including India, have declared zero AMS in the Uruguay Round or at the time of their accession. This means that most developing countries only have recourse to 10 percent product specific de-minimis and 10 percent non-product specific de-minimis, as well as Article 6.2 of the AOA which covers input and investment subsidies for low-income resource poor producers. And if a government wants to provide price supports for their producers, according to the AOA, Annex 3 paragraph 8, the following subsidy has to be notified to the WTO as an AMS. For developing countries with zero AMS like India, this figure cannot exceed the 10% product specific de-minimis (when the support is product-specific). 

The support to be notified to the WTO will be the difference between the administered price and the fixed external reference price, multiplied by the volume. However, the trap in this AoA Annex 3 paragraph 8 language is that it is not only the volume that the government actually procures, but the entire production that is ‘eligible’ to receive such supports. That is, even if the Indian government actually only procures a small volume, they have to calculate the AMS supports as if they had provided price support for the entire production of that product (the ‘eligible’ volume). With this constraint, several developing countries are in danger of reaching or exceeding their permitted limits of 10 percent product specific de-minimis.

In view of the food crisis in 2007-08, the increasing volatility in food prices, and the uncertain supplies in the international market (due to production variations as a result of climate change and also due to financial speculation), it is essential for developing countries to increase their food production. To do this, government price support to low income resource poor farmers is important. This has been, and continues to be, how developed countries have succeeded in their development and industrialization process. In order to support low-income resource-poor farmers in developing countries, the G33 proposal therefore attempts to make price supports for such farmers a special and differential treatment exemption (as in Article 6.2). The G-33 proposal will remove asymmetry and inject a little more equity into the rules of the AOA between developed and developing countries. Many developed countries like the U.S. and EU are providing decoupled income supports to their farmers under the Green Box which are not subject to any ceiling levels. They have not even decreased their overall supports by shifting their AMS supports to the Green Box. Developing countries that declared zero AMS are being told they have to maintain their zero AMS forever. They cannot provide any additional support beyond their de-minimis and what Article 6.2 provides, even though it is for the purpose of ensuring food security of their people and survival of their small and marginal farmers. This is why India is trying to get the rules changed; so that purchasing food from farmers can be included in the Green Box.

Some developed countries, mainly the U.S., are the primary opponents of the G-33 proposal, although they have benefited the most from the biased and unjust rules of WTO, which allows a developed country to shift their huge agricultural subsidies to the Green Box to avoid any discipline. The developed countries are not taking any steps to reduce and eventually eliminate their massive subsidies, which mostly go to their large agri-businesses, yet they shamelessly restrict developing countries with huge hungry and malnourished populations from increasing subsidies meant to provide food security. The U.S. provided agriculture subsidy to the tune of $94 billion in 2011, yet its trade Ambassador to WTO, Michael Punke, at a Meeting of the Trade Negotiations Committee of the WTO in Geneva, in April 2013, said “the G33 proposal on stockholding of food put forward by India is confusing and concerning. Since the beginning of the Doha Round, developing countries have made clear that they view disciplines for the reduction of trade-distorting agriculture subsidies as one of the fundamental goals of the Round. Instead of creating new disciplines to reduce agriculture subsidies, the G33 proposal represents a step back from existing Uruguay Round disciplines – creating a new loophole for potentially unlimited trade-distorting subsidies”.[4]

But the fact is Green Box is a big loophole in the WTO, as it has no limit. Rich countries like the U.S. use this to their advantage by shifting most of their trade distorting subsidies from ‘Amber Box’ to the Green Box, including subsidies not directly linked to production, or are tied to environmental protection, so it looks on paper like they are reducing the support but the support has really gone up. The U.S. is the most critical of the India proposal, yet its own outlays on food stamps have risen sharply, and the total farm subsidy spending reached a new record of US$130.3 billion in 2010. Of this, US$120.5 billion has been reported as Green Box payments. According to U.S. government figures, domestic food aid—the category including food stamps— represented almost eight-tenths of total Green Box spending in 2010, at US$94.9 billion^[5].

Compared to this huge subsidy for food aid in the U.S., India’s subsidy accounted for around $9.4 billion[6] in 2010 of combined rice and wheat Indian food aid— the U.S. amount is 10 times larger than India’s. There are 80 million U.S. beneficiaries while India has 475 million, or 6.3 times larger per beneficiary than in the United States[7]. However, after the full implementation of the National Food Security Act of 2013, which entitles around 67 percent of the population to benefit from this, India’s food subsidies is expected to cross the 10 per cent mark. This will leave India open to penalties under WTO rules, which in this case punishes those countries who were not big subsidizers when this rule came into force and bound them to subsidies at 10 percent de-minimis level.

National food security programme

Indian Food Security Act 2013 guarantees right to food to two-thirds of India’s population (or 820 million[8] people, which point towards the actual level of poverty in India) by giving them five kilograms of rice or wheat or coarse cereals at Rs 3, 2, 1, respectively. It will require procurement of around 62 million tonnes of food grains annually from low-income resource-poor farmers, at the cost of Rs 1,30,000 crore[9] (or $21.13 Billion[10]) government support, only one-fifth of U.S. Green Box spending for food stamp. A recent World Bank report[11] showed that India accounts for one-third of the world poor, people living on less than $1.25 (about Rs 65) per day. The Arjun Sengupta report[12] estimated that 77 percent of Indians (about 836 million people) live on less than 20 a day (about $0.50 per day) based on data between the period 1993-94 and 2004-05. Similarly the NC Sexena committee set up by the Rural Development Ministry estimated that 50 per cent of Indians are below the poverty line if one takes into account the criterion of calorie intake[13].

The new international Multi-dimensional Poverty Index, developed by the Oxford Poverty and Human Development Initiative for the UNDP’s 2010 Human Development Report (HDR), also indicated that about 645 million people or 55 percent of India’s population is poor[14]. India’s poverty situation has gone worse in the last 12 years. As per 2001 UN Human Development Reports, India was at the 115th position among 162 countries, but in the HDR of 2011, India’s rank slipped to 134 among 187 countries. India lags much behind its neighbours Bangladesh, Bhutan and Nepal in terms of various social indicators. According to the HDR of 2011, the under-five mortality rate, it was 66 per 1,000 births in 2009 in India versus 48 in Nepal and 52 in Bangladesh.[15]

The reality of India’s hunger and poverty situation necessitates a food security programme that is consistent with the development concerns of India’s population. Therefore it is quite crucial for India and other developing countries to get the proposal on stockholding for food security approved at the Bali Ministerial in order to continue giving such subsidies within their domestic constituencies in future. But the U.S. has rejected the G33 proposal to change AOA Rules on the pretext that it “could undermine existing subsidy rules.” Instead of a permanent solution, the U.S. is ready to give India and other G33 countries, a “Peace Clause”. A Peace Clause is when countries agree not to bring up cases in the WTO against each other on an issue, but they don’t really change the rules per se. Often the Peace Clause is of a temporary nature for a set number of years and then automatically expires unless it’s actively renewed. This is a smart move by the U.S. to get the consensus on another important component of the Bali Package, i.e. agreement on Trade Facilitation that will require countries to invest in infrastructure to speed up customs clearances and help global trade. But trade facilitation is nothing but import facilitation and requires upgrading infrastructure at border, ports and custom procedures to boost excessive imports from developed countries.

Till the first week of October 2013, India has been sticking to the position that a multilateral agreement on facilitating trade through mandatory measures like time-bound clearance, better infrastructure and less documentation cannot be reached without a concurrent pact on relaxing food subsidy limits to let developing countries meet their food security commitments. If the G-33 group of developing countries’ proposal on food security does not move forward, the trade facilitation agreement (pushed by developed countries) will not happen, said Rajiv Kher, India’s chief negotiator at the WTO in July this year[16]. However, two months later in October, there has been a change in India’s position vis-a-vis both the proposals, the food security and the trade facilitation. WTO Director General Azevêdo visited Delhi and stressed a middle ground for putting a Bali package together with the help of India. This was quite a disturbing turnaround for India and if India sticks to this new position, it has the potential to fail the ambitious food security programme under the 2013 Act. 

After the Azevedo visit, India seems ready to settle for a short-term solution to the problem surrounding its food security legislation and agree to a ‘peace clause’ which provides a temporary reprieve from penalties in the event that the subsidy level is breached. India may also agree to the demand of developed countries for a pact to facilitate movement of goods across borders.

Since the Peace Clause may lapse after the agreed period of time without change in the AOA rules, India’s dream project, the national food security programme, will be jeopardized. The increasing subsidies by the developed countries will see increase in food imports, after agreement on trade facilitation, pushing domestic farmers out of business. India must revert back to its original position and intensify demand for more policy space to feed their poorest population while paying a fair price to their farmers under the Green Box. Like the developed countries, India and other developing countries should have similar flexibilities and comfort zone to manoeuvre their subsidies for the benefit of its people and farmers.