Food security: India's stockholding & subsidy stand at WTO and why it's key

Business Standard explains the issue that is said to have derailed the WTO negotiations at Buenos Aires

The much-talked-about World Trade Organization (WTO) negotiations in Argentina collapsed after participating countries failed to reach a common ground on food and agriculture subsides, a key concern that India raised and on which, according to some reports, refused to dilute its stance till a permanent solution was reached.

Even after hectic parleys, the member nations failed to break an impasse over the public food stockholding issue on the fourth and final day of the ministerial conference. 

What are these food subsidy and public stockholding issues that have been the sticking point in the negotiations? Broadly, they cover the following:

India, along with some other countries, has been pressing for a permanent solution to the public stockholding and agricultural subsidy issues.

There are two kinds of subsidies involved here. One is India’s total subsidy under its ongoing Public Distribution Programme, which has now come under the ambit of the National food Security Act (NFSA). And the second is the general subsidy that India offers the agriculture sector, including those for seeds and fertlisers.

Under global trade norms, WTO mandates that a WTO member country’s food subsidy bill should not breach the limit of 10 per cent of the value of production, based on the 1986-88 reference price.

In 2013, India implemented the National Food Security Act (NFSA) to replace the Public Distribution System (PDS). The Act now covers almost 86 per cent of the country’s population and the legal entitlement under it is granted for subdised on wheat, rice and coarse cereals. The total subsidy under this according to the 2017-18 Budget estimates is around Rs 1,45,339 crore – around Rs 10,200 crore more than the revised estimates for 2016-17. 

Foodgrain for this is purchased at a minimum support price (MSP) fixed annually by the government and raised regularly. India believes that the two subsidy calculations are not in line, as the reference price is 1986-88. The country fears it might have breached the limit of 10 per cent of the total value of agricultural output as subsidy and wants the reference price altered.

This calculation of subsidy is slightly different. It is not plain input subsidy as understood. It is on two sides – one is input side and another output side.

So, if on the output side (the price fetched by a farm produce) the domestic price is lower than the international price, it is considered a support (subsidy). This happens when grains are purchased under MSP for the Public Distribution System. Similarly, on the input side, if the cost of inputs like fertilisers, seeds, power, etc, is lower than international prices, it is considered support.

When India entered into WTO negotiations, the output subsidy was negative, but on the input side it was positive, as the cost of fertilisers, seeds, etc, was lower than international rates. So, the net subsidy was still negative.

However, subsequently, input subsidies rose sharply and the domestic price of India's farm produce was much closer to international rates, so the 10 per cent threshold was breached.

According to some calculations, this was 18-20 per cent of value of output of India's farm produce five-six years ago.

Another clause here is that if support/subsidy is provided to small and marginal farmers, that amount is deducted. India has almost 80 per cent of its farmers falling in the category of small and marginal farmers, so it was saved from a threshold breach.

The WTO considered any farmer holding less than 10 acres of land as small and marginal, so no farmer fell in the category of small and marginal. But of late this has been brought down to farmers holding less than 4 acres of land, so India will have some farmers moving out of the small and marginal category.