Deepankar Basu and Debarshi Das, Guest Bloggers
Deepankar Basu is Assistant Professor in the Department of Economics, University of Massachusetts-Amherst. Debarshi Das is Associate Professor in the Department of Humanities & Social Sciences, Indian Institute of Technology, Guwahati. A slightly different version of this article appeared in The Hindu on Sept. 4, 2014.
Two important items adopted at the Ninth World Trade Organization (WTO) Ministerial Conference in Bali in December 2013 are the decisions on the Agreement on Trade Facilitation (TF) and on Public Stock Holding for Food Security Purposes. The former relates to the reduction of administrative barriers to trade—like dealing with custom barriers, documentation and transparency. The latter concerns the procurement and storage of food grains by state agencies for public distribution.
The attention of the world was recently focused on these two items as India, in a statement to the General Council of the WTO on July 25, argued that the adoption of the protocol on trade facilitation be postponed until a permanent solution on public stock holding for food security had been worked out. Despite intense pressure from developed countries, including the United States, India maintained its stance even as the deadline for adopting the protocol on TF approached and passed (on July 31).
Even though developing countries have generally supported measures to enhance food security, support for India’s position was not easy to come by this time around. Only three countries—Cuba, Bolivia and Venezuela—stood with India at the WTO. Later, the UN’s International Fund for Agricultural Development came out in support of India’s position. Not only were most members of the G-33 not with India, but even the other members of the BRICS group looked askance. Many countries have openly criticized India for intransigence. Is India’s stand unreasonable?
Hunger and Under-Nutrition
India, like many developing countries, faces serious problems of hunger and under-nutrition. According to National Sample Survey data, average calorie and protein intake has been steadily declining over the past few decades. In rural areas, average calorie intake per person per day declined from 2221 kcal in 1983 to 2020 kcal in 2009-10. Over the same period, average protein intake per person per day declined from 62 g to 55 g. Urban India has displayed a similar pattern: average calorie and protein intake declined from 2089 kcal and 57 g in 1983 to 1946 kcal and 53.5 g in 2009-10. Even though there has been some increase in average calorie and protein intake since then, the vast majority of the population remains seriously under-nourished.
If we look at more direct measures of malnutrition, the picture is perhaps even more grim. According to the latest National Family Health Survey (NFHS, 2005-06), about 40% of children under the age of 3 years were underweight, and about 45% were stunted. Close to 80% of children aged 6-35 months and 58% of pregnant women aged 15-49 years were anemic. About 33% of women and 28% of men aged 15-49 years had below-normal body mass index. India fares worse than many sub-Saharan African countries in terms of malnutrition.
Given this enormous burden of hunger and under-nutrition, it is only natural that India place a high priority on food security. A key institutional mechanism to address the problem of hunger and under-nutrition has been the public distribution system (PDS) in India. The PDS involves the government procuring food grains from farmers, storing them in warehouses, and then distributing them to poor consumers. In recent years, the price paid to farmers—known as minimum support price (MSP)—has been higher than open market prices. On the other hand, the price at which the food grains is distributed to consumers—known as the issue price—has been lower than the open market price. Hence, PDS provides subsidies to both farmers and consumers. On the one hand, the subsidy to farmers, estimated to be about 20% of the overall food subsidy by some economists, provides much-needed income support to poor agricultural families. On the other, the subsidy to consumers, by providing staple food grains at affordable prices, is necessary to increase consumption of poor families and address the widespread problem of hunger and under-nutrition.
Trade Collides with Food Security
Being a member of the WTO, as India has been since January 1995, the country is bound by the agreements that have been signed and ratified by the organization’s members. According to Article 6 of the Agriculture Agreement, providing minimum support prices for agricultural products is considered trade and production distorting—these measures fall into the so-called “Amber Box”—and are subject to limits. The subsidy arising from “minimal supports” cannot exceed 10% of the value of agricultural production for developing countries (and 5% for developed countries).
The PDS in India, as we have seen, entails minimum support prices, public stock holding of food grains, and subsidies for producers (and consumers). It is possible that, in some year, the subsidy for producers will exceed 10% of the value of agricultural production. In that eventuality, India would have contravened the Agriculture Agreement and would be open to legal action (and penalty) by other members of the WTO. It is here that trade and food security collide for India (and many other developing countries). On the one hand, India needs to continue with, and strengthen, the PDS to address problems of hunger and deprivation. This requires procurement and public stock holding of food grains. On the other hand, its membership in the WTO ties its hands with the commitment to not allow the subsidy due to minimum support prices (and public stock holding) to exceed 10% of agricultural production.
Possible Solutions Ignored
As part of the discussions on agriculture—an important part of the ongoing Doha Round of the WTO—at the Ninth Ministerial Conference in Bali, this conflict between trade and food security came up for intense debate. Two solutions to deal with the conflict exist. The first solution comes from a proposal circulated by the G-33 group of countries in November 2012. This proposal argued for amending the Agriculture Agreement so that support for farmers (through procurement) in developing countries is considered part of the so-called “Green Box” and allowed without limits. The logic for this proposal is simple: developing countries must support poor and small farmers to mitigate the effects of poverty and to achieve the goal of food security.
The second solution was offered by India at the Bali meeting and has been reiterated now. This solution relates to the method for calculating the subsidy. The current method used by the WTO to compute the subsidy to producers multiplies the amount of procurement with the difference between the procurement price and a fixed reference price. The reference price in the current method is the average of prices prevailing in the period 1986-88. This method is quite meaningless because actual prices have increased several fold between 1986-88 and now. Hence, India has argued that the reference price used in the calculation of the AMS should be moved forward on a rolling basis.
Both these solutions, offered by developing countries, have so far been ignored by the dominant forces—the developed countries—in the WTO. The developed countries are far less interested in issues of food security than in trade facilitation. Thus, as negotiations proceeded, India saw reluctance on the part of some developed countries to deal with issues relevant to developing countries, including the issue of public stock holding for food security. India realized that the likelihood of a permanent solution for the issue of public stock holding by the 11th Ministerial Conference (i.e., within the next 4 years) would diminish substantially once the protocol on trade facilitation was adopted. Hence, it refused to sign the protocol on trade facilitation unless there was an assurance of finding a permanent solution to the issue of public stock holding. Even if this goes against the letter of the Ministerial Decision of 7 December 2013, it is eminently sensible for the Indian government to put the interests of food security of its citizens before the vague and dubious gains from free trade. It might not go against the spirit of the Doha Development Agenda.
There is one area in which interests of the vast majority of India’s under-nourished population and genuine concerns of WTO members coincide, and the Indian government would do well to recognize and act on this. A major and genuine fear of WTO members is that India will dump its huge stock of food grains on the world market, crashing food prices. Now, the fact that India has an unusually large stock of food grains is certainly not an optimal outcome. Rather it is the result of the refusal of the government to disburse these food grains—for instance, through food-for-work programmes—because of the fear of increasing the food subsidy bill. Moreover, by refusing to disburse food stocks, the government has also chosen to ignore a directive from the Supreme Court to do so. Thus, the Indian government could send appropriate signals by continuously releasing the food stocks only in the domestic market, addressing, at one go, both the genuine concerns of WTO members and the nutrition needs of its citizens.
Cash for Food?
While many commentators have been sympathetic to India’s concern with food security, they have also argued for replacing the existing in-kind PDS with a cash transfer system. This would do away with procurement and public stock holding, and automatically solve the WTO issue of subsidy to farmers. There is an added advantage, the argument goes: Dismantling the existing in-kind PDS and replacing it with a cash transfer system is also a more efficient way of distributing subsidies. The current system is plagued by corruption and leakage that a cash transfer system could solve. Along similar lines, others have supported the dismantling of the PDS even as they have argued for the government to continue with procurement and public stock holding to deal with food price volatility.
The key thrust of both arguments is to dismantle the existing PDS. Such arguments are problematic because they fail to engage with two important facts regarding the PDS. First, the coverage, reach, and effectiveness of the existing PDS has improved over time, especially in the past decade. Second, there is significant variation in the performance of the PDS across states. Some states, like Himachal Pradesh, Kerala, and Tamil Nadu, have consistently performed well. Many others, like Chhattisgrah, Jharkhand, Odisha, and Uttarakhand, have improved significantly over the past decade. Thus, arguments which, directly or indirectly, argue for dismantling the PDS are wrong-headed because they amount to arguing for dismantling a system that works and is also improving over time. They are back-door arguments for opening up the food economy to big, private capital that can have deleterious effects on the livelihood of peasants and agricultural labourers. These arguments have very little to do with ensuring food security of the population.
India should not only continue with its stand at the WTO—demanding a permanent solution to the issue of public stock holding for food security reasons before the protocol on trade facilitation is signed—but should also resist efforts to dismantle the existing in-kind PDS. On the contrary, it should make every effort to strengthen it and make it more effective for the vast majority of Indian population.
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