Untenable Assault On Our Farm Subsidies | 05 Dec 2018

At a time when the government is offering enhanced Minimum Support Prices (MSP) to the farmers for the Kharif crops, India’s farm subsidies’ regime has come under intense scrutiny in the World Trade Organization (WTO).

Over the past few years, the implementation of the National Food Security Act has also been questioned in the WTO, as several members argued that India’s agricultural subsidies were violating the disciplines of the Agreement on Agriculture* (AoA). After considerable remonstration, India obtained a temporary respite after being assured that no WTO member would initiate a dispute against India, even if its subsidies were in excess of its commitments.

Recently, various aspects of India’s agricultural policies came in for close scrutiny by several WTO members, including Australia, Brazil, Canada, European Union, Japan, Russia, and the USA. India has been questioned on its supply management policies for skimmed milk powder, sugar, and pulses, in particular, the export subsidies granted to all these products/commodities and the import restriction on pulses.

Background

• In May, the US questioned the basis for the grant of MSP to wheat and rice and more recently subsidies for cotton. In its submission to the WTO, the US has shown India’s market price support for rice was consistently above 70 percent of the value of production since 2010-11 and above 60 percent for wheat during the same period, while for cotton it varied between 53 and 81 percent.
• A second issue that the US has raised is regarding the quantity procured or “eligible production”. India has maintained that “eligible production” must be that part of the total production of a crop that is actually procured by the agencies.
• The US has been hinting that India must declare its “eligible production” before the actual procurement takes place (which India opposes). Announcing “eligible production” prior to actual procurement can have two adverse implications for the farmers in India. If “eligible production” is set at a higher level, it can either influence their decision to produce a particular crop and if it is set a relatively low level, they would be denied the benefit of the MSP.
• Australia has followed the US to challenge India’s price policy for sugarcane. Its main argument is that India provides implicit subsidies but has not declared this to the WTO. This is despite India’s long-standing position that it only sets Fair and Remunerative Price for sugarcane, according to the Sugarcane (Control) Order, 1966, which the sugar mills are expected to pay to the farmers.

Calculation of Subsidies

• Subsidies provided by WTO members are calculated with reference to international prices, which are assumed to be the competitive prices.
• In the negotiations leading to the adoption of the AoA, the international price of each commodity was a fixed “external reference price” (ERP), taken as the average of the international prices during 1986-88.
• For developing countries like India, the market price support for a crop cannot exceed 10 percent of the total value of its production. India’s market price support to its crops never exceeded 10 percent of their value of production. However, the US has challenged India arguing that its market price support to the major crops is well above this threshold.

Way Forward

• The first observation is that the creeping crisis in Indian agriculture requires flexibility in the use of policy instruments, which the framework provided by the AoA does not provide.
• The Centre must get its act together for undertaking a structural transformation of the agricultural sector, one that puts the interests of the small and marginal farmer and the landless labour at the center. The WTO rules have little tolerance for ad hoc policy making in agriculture; only a coherent set of policies that result in sustained improvement of peasant agriculture can stand scrutiny.
• There is a strong need for India to focus on the revival of the Doha Round. India needs a flexible policy regime to deal with its fragile farm sector. It is imperative to revive the Doha Round of WTO.
• The Nairobi Ministerial Conference held in 2015 had taken a decision that developing countries would be allowed to use indirect export subsidies only up to the end of 2023. This would mark the end of all policy instruments to support export subsidies in agriculture. Alternative support systems should be initiated by developing countries.