Unfair attacks on India’s food security policy at WTO expose global hypocrisy

During the 2024 G20 summit held in Brazil in November, India’s Prime Minister Narendra Modi emphasised a ‘back to basics’ and ‘march to the future’ approach to combat hunger and poverty. Meanwhile, certain countries deliberately disregarded essential facts recently at the World Trade Organization (WTO) to attack India’s food security policy for their own commercial interests.

The basis of this unfair attack on the Minimum Support Price (MSP) policy and its implications for the fight against hunger requires serious deliberation.

Recently, at the WTO, Argentina, Australia, Canada, Ukraine and the United States (‘co-sponsors’) issued a counter-notification claiming that India’s market price support for paddy (rice) and wheat farmers was 87.85 per cent and 67.54 per cent of production value, respectively, in 2022-23.

The communication sought to question the compliance of India’s MSP scheme for these two commodities with the rules under the WTO’s Agreement on Agriculture. In contrast to the co-sponsors’ claims, as per India’s domestic support notification, these percentages were 12.64 per cent and 0.02 per cent, respectively.

There were similar attacks on India’s food security policy based on price support in 2018 and 2023 as well. 

By projecting questionable subsidy figures, the co-sponsors aimed to create a narrative in WTO agricultural negotiations that calls for a steep reduction in price support to farmers. This challenge is not limited to India but extends to other developing countries with similar policies, as the same methodology applies to them.

Notably, many developing countries, including Indonesia, Pakistan, Bangladesh, Egypt, Kenya, the Philippines, Jordan and China — representing over 50 per cent of the world’s population — also implement price support policies. 

In essence, the counter-notification primarily serves as a veiled attempt by the co-sponsors to dilute the WTO mandate on finding a permanent solution to the issue of public stockholding for food security by portraying third-world countries as major subsidisers.

The basis for divergent support estimates

According to the WTO rules, the market price support equals the product of the gap between MSP and the fixed external reference price (ERP) with the eligible production. Based on India’s average import prices during 1986-88, the ERP for Indian rice and wheat was fixed at Rs 3.52 per kilogramme kg and Rs 3.54 per kg, respectively.

There are two main reasons for the divergent support estimates. The first is currency inflation — the co-sponsors calculated the price support in the Indian rupee (INR) without accounting for inflation, resulting in highly exaggerated support as they compared the current MSP with average import prices from nearly four decades ago. 

This led to an imaginary per kg subsidy of Rs 18.54 and Rs 16.61 for paddy and wheat farmers in 2022-23. However, India calculates price support in US dollars, implicitly considering currency depreciation, as the average exchange rate between the US dollar and INR was 13.41 in 1986-88 and 80.36 in 2022-23.

WTO rules allow countries the flexibility to choose the currency for calculating support and many countries, including Pakistan, Türkiye and Bangladesh, notify their agricultural subsidies in US dollars.

The second reason is eligible production. India considers the actual level of government procurement as eligible production, whereas the co-sponsors have used total production, citing the Korea-beef dispute at the WTO.

However, findings in a dispute are specific to the case under consideration and may not necessarily apply universally. In the context of dispute settlement, the US has also argued against past dispute findings having precedential value.

Outdated methodology

A significant challenge for most developing countries, including India, is the erosion of policy space due to outdated fixed ERPs based on 1986-88 for calculating agricultural support under WTO rules.

For instance, if the Indian government announces an MSP for wheat just a fraction above Rs 3.54 per kg, it is labelled a trade-distorting subsidy. What can Rs 3.54 purchase today? Clearly, the multilateral rules require recalibration to reflect present-day realities.

Over 75 developing countries from various negotiating groups, including G33, ACP and Africa, consistently demand a dynamic ERP based on recent export and import prices or inflation adjustments.

Using dynamic ERPs for rice (Rs 47.9 per kg) and wheat (Rs 29.9 per kg), the OECD, an organisation of rich countries, showed that support for Indian farmers was negligible in 2023.

Hypocrisy of co-sponsors

The attack on India’s food security policy exposes the hypocrisy of the co-sponsors. Ukraine, for example, has notified inflation-adjusted agricultural subsidies at the WTO to protect its sugar sector but surprisingly failed to apply this principle to India’s calculations for wheat and rice.

Do these so-called champions of free trade and transparency leave their farmers at the mercy of market forces? Certainly not. They implement various domestic support measures, including price support and price deficiency payments, to shield their farmers’ interests.

Due to their historical agricultural subsidies, Argentina, Australia, Canada, Ukraine and the United States have high entitlements to provide trade-distorting agricultural support under WTO rules. For example, Argentina uses 98.8 per cent of its trade-distorting entitlement to support its tobacco industry.

In 2020, the US had the flexibility to provide subsidies of up to 576 per cent of the value of rice production. In contrast, the upper limit for developing and least-developed countries (LDC), including India, is just 10 per cent of the value of production. In 2022, per-farmer domestic support in the US was Rs 67 lakh — over 180 times India’s per-farmer support — highlighting the unequal playing field.

Ironically, these advocates of transparency have consistently failed to provide timely information about their agricultural sectors. The last subsidy notifications for Ukraine and Argentina were in 2012 and 2019, respectively. 

Australia, Canada and the US have also regularly missed the WTO-prescribed deadline for submitting domestic support notifications. Instead of questioning India’s subsidy notifications, these countries should focus on meeting their own transparency commitments.

The co-sponsors must acknowledge the crucial role of price-support-backed public stockholding policies in ensuring the food security of billions in developing countries and LDCs. With a population exceeding 1.4 billion, India faces a monumental task in ensuring food grains are available at affordable prices. 

For perspective, India’s daily rice consumption equals nearly a year’s rice consumption in Australia, a co-sponsor. India’s MSP-backed public distribution system mitigated the adverse effects of the COVID-19 pandemic and the Russia-Ukraine conflict on domestic food security while supporting global food security through the World Food Programme and humanitarian aid.

Until WTO members go ‘back to basics’ and take concrete actions to update the outdated WTO rules to make them compatible with the socio-economic situations of developing countries, the march towards a hunger-free world will remain unaccomplished

Sachin Kumar Sharma is a professor, Teesta Lahiri is an associate (legal), and Suvayan Neogi is a consultant (Economics) at the Centre for WTO Studies, Indian Institute of Foreign Trade (IIFT), Delhi

Views expressed are the authors’ and doesn’t necessarily reflect that of Down To Earth.