Left over on the table

Written by Ajay Jakhar

November 20, 2014 

We should implement subsidies that are inversely proportional to land operating sizes.

Indiaseemsrelieved,having convinced the United States to advocate on its behalf at the WTO regarding the issues arising from its food security programmes, while food-exporting nations are rejoicing at New Delhi signing on the dotted line without insisting on a reduction of farm support in developed countries. As we defend public procurement and stock holding, they will be looking at opportunities to export to India high-value produce like fruit, vegetables, milk, poultry and pulses.

Food prices have been rising for the past many years; more so since 2007. As a result, food-importing countries, usually developing nations, are not overly interested in subsidy reduction in developed countries, because this would increase the cost of their food imports.

Now that the trade facilitation agreement is inevitable, the government must insist on the removal of the many unresolved anomalies and ambiguities in the international trade architecture before a final agreement is inked. Farm support that increases production and skews the market price is considered trade distorting. At the WTO, the market price prevailing in 1986-88 is the “reference price” used for calculating subsidies. Had this reference price been updated — say it was the average price of the preceding three years — we would not be in any danger of breaching the WTO subsidy limit of 10 per cent. Logically, it shouldn’t bother anyone if our support price is less than the prevailing international price. Yet, other rice-exporting nations complain about our rice subsidies.

We could also evoke the WTO Agreement on Agriculture, where “due consideration is given to the influence of excessive rates of inflation on the ability of any member to abide by its domestic support commitments”. Inflation over the past 25 years (about 600 per cent) warrants our not being able to abide by domestic support commitments.

India could have weathered the storm at the WTO better but for the lack of diligence in collecting data, research, documentation and negotiation skills. We were also negligent to not notify our subsidies for 10 years. Ultimately, our protestations of innocence were not taken seriously and we were unable to garner support at the negotiations.

The crux of the matter is how support is quantified. Support can be classified as an amber-box subsidy, considered to be production- and trade-distorting, or as a green-box subsidy, which is non-distortionary. Blue-box subsidies (direct payments under a production-limiting programme), supposed to be interim measures to move away from amber-box subsidies, get to escape adverse quantification and must be discarded.

As a farmer, I strongly believe that the value of trade price distortions as a result of support must also be quantified as an amber-box subsidy. The US gives $3 billion worth of support to its 27,000 cotton farmers, who produce 12 per cent of world cotton. Hypothetically, were this support to be withdrawn, the price of cotton would appreciate by approximately 25 per cent before stabilising, thereby increasing the value of world cotton output (currently about $55 billion) by $14 billion because of reduced production. This should also be taken into account while calculating US cotton subsidies. In India, seven million farmers produce six million tonnes of cotton worth $12 billion. Each of them could earn an extra Rs 26,000 without adding a single drop of water, fertiliser or sweat to the soil if the US discontinued its support. We could cautiously emulate Brazil and threaten to take the US to court. The US is going to pay Brazil $300 million to settle claims and continue its subsidies without being hauled to court.

Similarly, China directly subsidises cotton farmers by Rs 2,800 per quintal. This is over and above the Rs 5,900 per quintal they receive from the market. Indian farmers sell at a minimum support price (MSP) that is less than half this total price.

In India, farm subsidies that don’t reach over half the intended beneficiaries need to be redesigned bottom up. For example, the present system of farm support through MSPs is available for very few crops in select areas of the country. Price support is not available for produce retained for home consumption or to farmers who don’t have a marketable surplus because of small land operating sizes. We need income support to be decoupled from production support. The Aadhaar ecosystem and Jan Dhan Yojna could be used to implement a system of income support.

At Bharat Krishak Samaj, we have consistently been advocating for subsidies that are inversely proportional to land operating sizes, for targeted delivery and to achieve equitable growth. But first, India’s land records would need to reflect true land ownership and tenancy rights. Updating land revenue records is up to the states and poses problems that could derail the solution. Only after crossing this bridge can we hope to overcome further hurdles.

The writer is chairman, Bharat Krishak Samaj

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