The combined effects of the global economic slowdown and increasing climatic shocks are threatening food security in developing countries, prompting many to re-open World Trade Organization (WTO) discussions on limits to support for farmers.
A group of developing countries - known as G33 - is asking to exceed their agreed domestic support limits when they buy, stock and supply cereals and other food to boost food security among the poor; they want these changes to be exempt from any legal challenge.
Essentially, these countries want the freedom to buy grains at set prices from producers and to use that grain to build stockpiles for distribution. The WTO rules do not prescribe limits on the amount of food that can be bought at market prices for food stocks, and it does not limit the amount of food that can be provided as domestic food aid at subsidized prices. The WTO only disciplines buying cereals at administered prices.
The proposal will be discussed at the WTO Ministerial Conference in Bali, Indonesia, in December.
Developed countries and some developing countries are concerned that the G33 proposal - which is backed by India, China and Indonesia - could affect food security in neighbouring countries. They fear these measures could lead to surpluses in stocks, which the G33 members might dump in the global market, disrupting global prices.
Ashok Gulati, chairman of India’s Commission for Agriculture Cost and Prices (CACP), reckons India wants more leeway to provide support for its farmers and consumers because the government is launching a massive subsidized food scheme through a public distribution system that will reach two-thirds of its population - nearly 800 million people. He told IRIN that a situation where India would be in a position to dump excess stocks could arise "once in 10 years.” He added, “the larger distortion will be domestic," referring to disruptions to local markets.
A representative from one of the G33 countries at the WTO, who did not want to be named, said not all the members of the group were supportive of the proposal. "India is already the largest exporter of rice in the world... Small exporters will lose their competitiveness because of Indian subsidies... Rice prices are already going down, and with further subsidies it can lead to a price crash,” the representative said.
The delegate estimated that support for rice production in India - both in the form of agricultural inputs and procurement - ran into billions of dollars. Even more support could "ruin" agriculture sustainability and "create food insecurity instead of food security" in the region.
Gulati has publicly come out against the government’s plan to stockpile staple grains because of the effect it would have on prices in the local markets, according to interviews with the Indian daily the Economic Times and news agency DNA.
He maintains that dispensing subsidized food will not address malnutrition, a significant problem in India, where almost half the population of children are malnourished. Gulati believes this problem can only be addressed by comprehensively tackling the various dimensions of food insecurity, such as by increasing access to clean water and improving the status of women.
But a new paper, produced jointly by the Geneva-based International Centre for Trade and Sustainable Development (ICTSD) and the Food and Agriculture Organization (FAO), takes a sympathetic view of positions on both sides, and uses the proposal to flag the need to reform global agricultural trade rules. The paper contends there has been minimal reform to agricultural trade rules since the Uruguay Round of multilateral negotiations that led to the formation of the WTO two decades ago.
“The G33 proposal can more broadly be seen as symptomatic of the challenges many countries face in designing policies to achieve food security goals in the new price environment,” the paper notes.
“Although agricultural markets have evolved dramatically since 2007, global trade rules have not,” it adds.
To subsidize or not
Agricultural subsidies have been a contentious issue for years. The WTO has placed ceilings on how much the US and the European Union (EU) can spend on agricultural subsidies that distort trade, but these are still rather high, food rights groups say.
A drought in the US in 2012 and fluctuating food prices have led policy-makers there and in the EU to rethink protection and support for their farmers, the International Food Policy Research Institute (IFPRI) pointed out.
The US’s agriculture policy is governed by the Farm Bill, which is updated every four years, but the 2008 legislation was extended to September 2013, when the two parties - the Democrats and the Republicans - were unable to come to an agreement on subsidized food for the country’s poor. The new proposed bill recommends an expanded insurance programme with new crop insurance subsidies, which would see farmers receive money when income from certain crops falls below a targeted level. It also sets higher target prices for crops that trigger payments when revenues fall for several consecutive years. The bill is likely to come up for negotiations in the coming weeks.
The EU has largely done away with export subsidies that support the disposal of surplus production abroad, but the EU Common Agriculture Policy still ensures high levels of direct support to farmers and protects EU markets. The EU has substantially reformed farm support over the years to reduce its impacts on trade and production, but some still question whether the support provided continues to give European producers an advantage over competitors elsewhere.
On the other hand, the economic slowdown and its impact on local currencies have forced developing countries like Zambia to remove subsidies for farmers and millers because the expenditure is perceived as draining the country’s limited resources.
If richer nations are strengthening support to their farmers while the poorer countries cut back, could global imbalances grow?
Jamie Morrison, a senior economist with FAO and a co-author of the ICTSD/FAO paper, says that, generally, when considering support to farmers in times of disasters, countries should take into account the kind of support they have to fall back on. In rich countries, farmers have access to insurance and other safety nets, which might not be the case in developing countries.
He says rich countries use public funding to “underwrite potential losses [for farmers] which private sector insurance institutions may be less willing to cover. This type of support is considered to be less distortive of markets and trade.”
But developing countries tend to intervene directly in the market to stabilize prices for their producers while providing their consumers “with some level of protection against high food prices”, Morrison said. This generally leads to buying grains at prices above the market value and managing cross-border trade. This support not only drains the country’s coffers but “is considered to be distortive of markets and trade.”
Often these subsidies, whether in the form of cheaper agricultural inputs or higher prices for produce, do not get to the intended poorest farmers, and they are often driven by political opportunism - appeasing the majority of the people in developing countries who depend on agriculture for income and food.
CACP’s Gulati, who formerly headed IFPRI's Asia office, said, "Subsidies on fertilizer, power and irrigation are not targeted. Subsidies have risen much faster than public investments in agriculture [in India]. The marginal return on subsidies is less than one-fourth of that from investments. Yet subsidies multiply due to higher political returns. So India wants more leverage on subsidies."
Yet Morrison adds that, for many countries, direct support for farmers "may be essential in facilitating agricultural transformation" and the "only practical option available given weaknesses" in other public institutions that could have supported production. "Greater use of a system more reliant on market-based instruments may make a more efficient use of resources, but may be impractical at the current time".
Jonathan Hepburn, agriculture programme manager with ICTSD says, “WTO rules need to take into account the reality that countries are in different situations, and that some have fewer resources at their disposal to achieve public policy objectives. “
In the recent past, negotiating groups at the WTO have sought preferential treatment. The least developed countries (LDCs), for instance, are negotiating to enjoy some flexibility in their implementation of import tariffs on agricultural products. However, even the LDCs face limits on the amounts and kinds of subsidies they provide - although many lack the resources to provide the amount of farm support that would be capped by WTO rules, points out ICTSD’s Hepburn.
Part of the problem in creating new rules on trade, Hepburn said, has “been striking a balance between the rights and responsibilities of different groups of countries - especially as the global economic landscape has evolved dramatically over the last decade or so.”
In December, according to the WTO, countries might decide on a "temporary “waiver” (a formal legal exemption allowing some member states to exceed their limits), a non-binding political statement by the conference’s chairperson or some option in between. Flexibility along these lines has sometimes been called a “peace clause” or “due restraint”, because members would avoid bringing legal disputes against developing countries in these circumstances."