India stands firm on rice stockpiling program

BALI, Indonesia — The issue seemed simple when Indian trade minister Anand Sharma sat before hundreds of journalists Dec. 5 to denounce a World Trade Organization proposal on food security rules.


“The right to food security is not negotiable,” Sharma said. 


“This is a fundamental issue and we will never compromise. This is not a matter that can be traded away.”


Representatives of non-governmental organizations, who see WTO as a benefit to developed countries and not the poor, applauded.


Earlier, Sharma had told other delegates to the WTO ministerial meeting that India’s right to stockpile food for distribution to the poor “cannot be compromised for minor gains of the developed countries.”


It sounded like a classic battle between rich countries and the poor, but other countries and WTO officials insisted it was no such thing. 


Developing as well as developed countries have concerns about the Indian program of stockpiling food for security purposes.


Such programs are legal under WTO rules and not in dispute.


The issue, they said, was that India uses a form of farmer subsidy to do it, which is in danger of exceeding its farm subsidy limit under rules established 20 years ago. If it does, India could face challenges at the WTO unless it changes the way the program works.


The proposal on the table at Bali was to give potential offenders a four-year “peace clause” of immunity from WTO challenges to give them time for changes.


“We have not come here as petitioners to beg for a peace clause,” Sharma fumed.


However, he eventually accepted a proposal that sets as a target a four-year transition to a “permanent solution” without the threat of challenge before the WTO. The deal implies that the immunity from challenge will continue until the work is done if a permanent solution is not in place in four years.


It was the most contentious issue at play throughout the WTO ministerial meeting last week, identified early as the most likely deal breaker.


Like most contentious issues at the WTO, it is both simple and complex, political and technical with many sides.


At the core of the dispute is India’s food security law that guarantees 700 million poor citizens low-cost grain taken from a public stockholding that is built and replenished with rice bought from farmers at a higher-than-market price.


Sharma said purchases for the stockholding program have never exceeded 30 percent of the crop. The rest goes on the domestic or world market and has no effect on trade.


The program serves two purposes: subsidizing food for most of India’s 1.25 billion people and injecting cash into the subsistence farm economy.


However, under rules adopted by the General Agreement on Tariffs and Trade in Geneva in 1994, the Indian expenditure on stockpiled grain above market rates counts against its farm subsidy limit. 


The benchmark that is used to calculate the impact of subsidy is a “reference price” based on 1986-88 levels and has not been updated since.


Prices are vastly higher than they were a quarter century ago, which means the Indian “administered price” is measured against a low historic price and recorded as a higher subsidy potion of the crop value than it really is, pushing the country toward the limit. 


Sharma said the base numbers for production values should be updated from the 1980s to make subsidy limits more relevant to current prices. He did not win any explicit commitment on that, although it will be part of “permanent solution” discussions.


Critics supporting the proposal argued that all countries live by the same rules and reference margin. It has nothing to do with limiting developing countries’ ability to pursue food security through stockpiles, they said.


The problem is that India is incorporating farm subsidy into the program and must abide by the rules it agreed to in 1994 until they are changed.


As well, they argued that the program could become trade distorting if some of the subsidized grain leaks into international trade or farmers receiving higher prices for a portion of their production can afford to sell some of the remainder of their crop at lower prices into commercial markets.

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