People's Democracy

The Indian Food Security Act

And India's WTO Commitments

Vikas Rawal

THE National Food Security Act was passed by the parliament on September 2. The Bill was granted presidential assent, and notified, on September 12.

The debate in the run up to enactment of the Food Security Bill was marked by critics pointing out that the new Act was not likely to result in any significant expansion of the pubic distribution system. Coverage of public distribution system has been progressively reduced since the mid-1990s. Although the Act claims to expand the coverage of entitlements to subsidised food, it in fact retains the discredited system of targeting, though in new forms. It does not provide a universal right to food. Further, the quantity of entitlement has been reduced for most households. While the present average per capita provision of grain is at present about 8 kilograms per month, the new act seeks to reduce this to 5 kg per person. In view of severe economic distress in the recent years, particularly among rural people, various state governments have expanded provision of food grains through state-level interventions. The new Food Security Act is expected to raise the cost to the states for providing additional grain through state-level schemes. The central government has only given an assurance to maintain supply of foodgrain at present prices to the states for three years.

While critics in India were attacking the Food Security Bill on grounds of it providing too little, something quite different was happening outside the country.

As soon as the Act was notified – the rumour has it that it happened on the same day – Canada raised the issue in WTO asking India to “elaborate on the expected implications of the National Food Security Bill, 2013 on India's public stockholding programmes including on levels of procurement and spending?” Further clarifications were sought also by other developed countries, most notably the US. Although India's response in WTO, on September 26, was just that it was “premature to raise the issue at this stage when the Act is yet to be implemented”, the stage was set for international pressure on this issue.

INTERNATIONAL

DEVELOPMENTS

It is important to discuss two international developments in this context.

The Agreement on Agriculture of the WTO was negotiated in the late 1980s and early 1990s when most developed countries gave very high levels of support to agriculture; this has, by and large, continued to be the case. On the other hand, level of support in most developing countries was, and continues to be, extremely low. One consequence of high level of agricultural subsidies in developed countries was that agricultural prices at the time the Uruguay round was negotiated were extremely low. As a result, although market price support policies were regarded as trade distorting, and their level capped at 10 percent of value of production, this was not a big problem for India and many other developing countries because of low prices and relatively low levels of subsidies to start with. However, the Agreement on Agriculture defines the prices that prevailed in 1986-88 as the reference price, in nominal terms, for calculation of value of production. The formula used in the Agreement on Agriculture is defined in such a way that, even if a country was not providing any other kind of support to agriculture, a developing country like India can offer a procurement price of, at most, about 11 percent more than the prevailing 1986-88 prices.

There has been a huge inflation in global food prices over the last 10 years. The FAO food price index has more than doubled in the last ten years – from its lowest level of 89.9 in 2002 to 211.8 in 2012. Table 1 shows the base reference (1986-88) price for selected commodities that is used for calculation of market support for India, the producer prices in 2011 and the minimum support prices offered in 2013. The WTO agreement allows the procurement price to be raised at most (if no other support were being provided) by 11 percent of the reference price. Since current market prices are way beyond that limit, any price support, of even one paisa more than the prevailing market price, results in violation of WTO rules.

Table 1. Reference prices (average of 1986-88), producer prices (2011) and minimum support prices (2013),  selected commodities  (Rupees per metric tonne)

Source: Reference prices were taken from the WTO website. Producer prices were taken from FAOSTAT. The latest available data on producer prices are for 2011. Minimum Support Prices were taken from the ministry of agriculture, Government of India.

The second development that needs to be noted is that over last year or so, several groups of developing countries have submitted proposals to WTO demanding relaxation in these restrictions. These demands have been made particularly because huge rises in global food prices, particularly since 2007-08, have made food security a major issue all over the developing world. One of the most important proposal was made in November 2012 by G33 countries, which includes India and China. India was reportedly the major driving force behind the proposal. The proposal demanded that public procurement on grounds of food security and support to low-income farmers, and public expenditure on rural development, should be exempted from WTO restrictions on trade-distorting (amber box) subsidies. Another noteworthy proposal, made by a group of countries in September 2013, demanded that the reference price be adjusted for inflation so that 10 percent support can be provided over and above existing prices and not 1986-88 prices. It may be noted that Article 18.4 of AoA says “due consideration” will be given to “the influence of excessive rates of inflation on the ability of any member to abide by its domestic support commitments.” However, the Agreement does not specify any mechanism for accounting for inflation, and, so far, no adjustment has ever been done on account of inflation.

WTO is going to have its Ninth Ministerial Conference in Bali in the first week of December. While developing countries are hoping to be able to bargain for some space for expanding public support to farmers, the developed countries are aiming to force developing countries to further open their markets – they call it market facilitation – to their agricultural produce. Access to large Indian market is specifically an important goal. It is noteworthy that, of all the developing countries, India and China have the strongest bargaining capacities. Any possibility that these negotiations can have at least some positive implications for developing countries crucially hinges on the positions that India and China take in coming few weeks. It may be noted that Brazil and South Africa have not been a part of G33 or other developing country groups demanding relaxation of WTO restrictions on market price support.

TOTAL

SURRENDER

Recognising the importance of swinging India's position, the United States, and the WTO, have started mounting pressure on India. WTO Chief, Roberto Azevêdo, was in India recently. The US is completely opposed to accounting for inflation and updating the reference prices or for a long-term exception to public support on grounds of food security.  Azevêdo's mission was to rally support from India to accept a short-term exception (under what is caused the “peace clause”) to public support on grounds of food security and, in return, to support demand of developed countries for market facilitation.

Reports that emerged in the media at the end of Azevêdo's visit suggest that, in view of its electoral imperative to be able to showcase the Food Security Act until the 2014 elections, the Indian government has indeed accepted the proposal of two years' exception under the “peace clause”.

Media reports during prime minister's recent visit to the United States suggested that this issue was discussed between the prime minister and President Obama, and in negotiations during this visit, India not only accepted a two-year exception under the “peace clause” but also expressed its willingness to discuss the issue of market facilitation.

If these reports are true, such a position would imply a total surrender and end of a possibility of even a marginally beneficial outcome from the Bali Ministerial. Such a surrender would compromise interests of India's farmers as well as consumers. Such a position would also be bad international diplomacy as other less-developed countries are looking up to India to provide leadership in forging unity among less-developed countries to negotiate for at least small improvements in what has been an extremely unjust framework of world trade.

Indian government should immediately provide full details of negotiations that have taken place so far -- during Azevêdo's visit to India, during prime minister's visit to US, and in Geneva. The Indian government should come out with a statement on what its negotiating positions would be in Bali.