India-US deal on food security in WTO: Postponing the search for a permanent solution

Just a few weeks back, as the Maharashtra Assembly election results poured in, Uddhav Thakre knew the crucial role Shiv Sena will play in the formation of the Maharashtra government. It was being presumed that Uddhav Thakre would be the next deputy Chief Minister in the new coalition government.

But the moment NCP announced unconditional support to the BJP, Shiv Sena lost the plot. Uddhav Thakre’s bargaining power was reduced to zero. Shiv Sena now sits in the Opposition.

You will ask me why am I narrating from the Maharashtra’s political theatre that the nation has already been a witness to when I am trying to understand the reasons behind all the enthusiasm that has been generated with India managing to seal the deal on food security with the United States at the World Trade Organisation (WTO). As we read in the newspapers, the deadlock over the signing of the landmark Trade  Facilitation Agreement has been broken with India and the US claiming to have “successfully resolved” their differences on the issue of minimum support price to Indian farmers.

Let’s first try to understand what has been achieved. Commerce Minister Nirmala Sitaraman said: “We are happy that India and US have successfully resolved their differences related to the issue of public stockholding for food security purposes at WTO in a manner that addresses our concerns.” At the same time, the minister announced that show would not be making any information publicly available before it is presented to the WTO General Council scheduled to meet on Dec 10-11.

If accepted by the General Council, the bilateral agreement will pave the way for the launch of the Trade Facilitation Agreement (TFA) which aims at making simple the cumbersome custom processes, reducing costs and administrative charges in moving goods across countries, thereby making imports quick and easy. This is where the commercial interest of the rich developed countries lie and all out efforts therefore were to bypass India’s objections on first finding a permanent solution to its food security concerns.

To put it simply, the impasse over the multi-billion dollar opening that is expected once the TFA comes into force is now removed. The TFA will come into existence, latest by mid-2015, once all the diplomatic formalities are completed.

India has therefore managed to postpone the permanent solution it was looking for to the vexed issue of paying adequate food prices to its 600 million farmers which is directly linked to ensuring food security for 840 million poor people. But more importantly, like the fate of Shiv Sena in Maharashtra Assembly, India too has lost the bargaining power in the international trade forum.  

The international desperation to finding a solution to India’s concern over food security was directly linked to the launching of Trade Facilitation Agreement. But once the TFA comes into existence, India’s defiant stand on protecting its food subsidies will get dissipated.

I am not saying that what India has managed to wrest from the US is not quite a step forward. After all, the Peace Clause – the period in which no member country can challenge India’s food subsidies at the Dispute Panel – has been extended from the originally agreed period of four years at the Bali WTO Ministerial in Dec 2013 to an indefinite period until a permanent solution regarding this issue has been agreed and accepted. In other words, India can go on paying farmers a minimum support price regardless of the WTO condition of keeping it within the 10 per cent permissible limit allowed as part of the Aggregate Measure of Support under the Agreement on Agriculture.

For the time being it means the US has stepped down from its arrogance and double standards in protecting the massive subsidies that it pays to its minuscule farming population but challenging the subsidy support India or for that matter other developing countries give to their small and marginal farmers constituting bulk of the farming populations. But this may perhaps be because of the larger economic interest for the US that presently lies in aggressively pushing for its exports in the developing countries. As former WTO Director General Pascal Lamy had once remarked: “For all practical purposes, the TFA will for all practical purposes mean lowering the import tariffs in developing countries by another 10 per cent.”

Nirmala Sitaraman has acknowledged that the India-US deal will end the impasse at the WTO and open the way for the implementation of trade facilitation agreement. Since the issue of food security was linked to the approval for trade facilitation agreement, I would have thought the best option for India was to find a permanent solution before making any commitment on signing the trade facilitation treaty. Now with the bargaining power gone, India may not get what it wanted. A sword of Damocles will continue to hang whether we like it or not.

Prime Minister Narendra Modi had demonstrated political astuteness by standing firm on India’s question of seeking a permanent solution to its food security concerns by refusing to endorse trade facilitation by July 31. The deadline was breached and India was accused of stalling the international trade negotiations. But Prime Minister stood his ground, and rightly so. He in fact remarked that it was important for him to protect the national interests rather than look for some articles in the foreign media applauding him for going with the global stream.

The issue at stake is the minimum support price that India pays to its farmers. According to WTO, India is allowed to provide a maximum of 10 per cent of the total value of a crop as minimum support price. In case rice, against the permissible limit of 10 per cent, India provides 24 per cent. In case of wheat, it is fast approaching the 10 per cent deadline. Indian price support to farmers is actually hurting the commercial interests of US agricultural exporters. Nearly 33 such export federations are pressuring the US government not to allow any further rise in MSP for Indian farmers. They are keen that Indian farmers will be forced to get out of agriculture once farming become economically viable thereby turning India into a major food importing country. #


The near-freezing of crop prices in India is adding to farm distress

The writing on the wall is loud and clear. For three years in a row, wheat farmers have received a paltry increase of Rs 50 perquintal (100 kg) per year in the form of minimum support price (MSP), which translates to 50 paise per kg every year. This corresponds to an insignificant 3.6 per cent increase in the price being paid to wheat farmers this year.

For the paddy crop too, the price farmers got this year was Rs 50 per quintal more than what they received a year back.

Former Chief Minister Capt Amarinder Singh’s analysis is right on the spot. Accordingly, the average cumulative increase in the paddy and wheat MSP during the Congress-led UPA regime, between 2004 and2014, was Rs 70 per year. Before that when NDA ruled, from 1998 to 2004, it was only Rs 11. While some may say there is no difference between BJP and Congress when it comes to farmers, what is perhaps not being seen as clearly is that the era of price policy for farmers is over. No amount of shouting and sloganeering is going to be of any help now.

Not only have the successive governments for all practical purposes managed to put a cap on the MSP, internationally too there is no support for higher prices to farmers. The World Trade Organisation (WTO) is demanding the withdrawal of the procurement prices in India, and even though India is standing firm on its resolve to protect the interests of domestic farmers but back home the Ministry of Food has already directed the State governments not to provide any bonus over and above the MSP to farmers. The underlying message therefore is absolutely clear. It is only a matter of time before the government abandons the price policy in agriculture. 

These developments are happening at a time when most mainline economists are blaming the hike in MSP as the primary reason for the rising food prices.

So when Punjab chief minister Prakash Singh Badal seeks a revision in wheat MSP asking for another Rs 150 per quintal, he too knows that his plea is going to fall on deaf ears. In fact, he knows it much better than anyone of us. He is under tremendous pressure to do away with massive procurement of wheat and rice that Punjab undertakes every year. Freezing MSP, and amending the APMC Act that allows setting up of private terminal markets, are the immediate steps being suggested to kill official procurement.

While all efforts are on finding ways and means to cut down on the prices that farmers’ get for their produce, compare it with the 7 per cent additional installment of Dearness Allowance (DA) to Central government employees in September over the existing rate of 100 per cent of the basic pay/pension to compensate for price rise, you realize the step-motherly treatment being meted to the majority farming population in the unorganized sector. Employees are getting 107 per cent DA allowance today.

For the government employees, the previous UPA regime had even announced setting up of the 7th Pay Commission. No one blames the rising pay scales to be even partly responsible for rising inflation. It’s only farmers who are blamed.

In addition, as per a Centre government notification, whenever the DA crosses 50 per cent, there will be an automatic increase by 25 per cent in allowance such as Children Education Allowance, Travelling Allowance, Conveyance Allowance, Cash Handling Allowance, Risk Allowance, Bad Climate Allowance, Hill Area Allowance, Remote Locality Allowance and Tribal Area Allowance, among others. Agreed, not all employees get all these allowances but they do get some of these. In other words, the Central and State government employees are completely insured against any and all kinds of price rise.

Interestingly, while the Central Government Employees Federation is demanding a minimum monthly wage of Rs 15,000 for contract workers/other unorganized sector employees; and a minimum monthly salary of Rs 26,000 to the lowest aid employees of the Central Government, there is no talk at all of providing an enhanced minimum monthly package to the farmers. As per answers provided in Parliament, the average monthly income of a farming family is at a pittance -- Rs 2,115 for a household comprising 5 people on an average.

No wonder, several studies show that more than 58 per cent of the 600 million farmers sleep empty stomach. Ironically, the people who produce food for the country themselves go hungry.

It’s therefore time to shift to a more inclusive income policy for farmers. With Jan Dhan Yojna taking the reach of the banks to the poor and unreached, it should be possible to provide direct income support to farmers. Setting up a State Farmers Income Commission, and merging all agricultural subsidies into the monthly income package that a farmer receives, is the only plausible way forward. Farmer organizations as well as political leaders must see the light of the day. I don’t think even a High Court directive to extend procurement to all crops will make any difference to farmers livelihoods. Time for the Court’s too to see beyond the price policy. #

Further reading

Farm distress looms as global crop prices crash after 10-years bull run. Indian Express. Nov 5, 2014
ttp://indianexpress.com/article/india/india-others/farm-distress-looms-as-global-crop-prices-crash-after-10-year-bull-run/

Farmers suffer, others prosper. Orissa post. Nov 5, 2014
http://www.orissapost.com/epaper/051114/p8.htm

समर्थन मूल्य में मामूली वृद्धि Dainik Jagran, Nov 8, 2014
http://www.jagran.com/editorial/apnibaat-price-11757921.html