Introduction
India’s agriculture policies aimed at improving its food security have received increased scrutiny following the December 2013 World Trade Organization (WTO) Ministerial meeting in Bali, where India’s position on this issue almost doomed the entire talks. In fact, the growing use of agriculture subsidies by India and other developing countries like China are changing the dynamics of the WTO negotiations for new agriculture subsidies commitments, where the focus had previously been on developed country subsidies. India’s agriculture subsidies are also very costly and are coming at the expense of addressing other pressing development needs. It has also led India to adopting a defensive stance in the WTO Doha Round, focused on protecting these subsidies. As a result, India has missed the opportunity to shape the international trading system in ways that can strengthen food security in India. The recent election of Prime Minister Narendra Modi provides a key opportunity for India to rationalize its agriculture subsidies and to shift its focus in the WTO negotiations away from protecting its farmers to realizing the benefits for food security from imports and the opportunities for its agriculture sector from reducing barriers to agriculture exports in developed markets.
Food Security
Countries are increasingly concerned about the impact of rising prices on food security. These concerns came to a head in 2007-08 due to a doubling in maize and wheat prices and a tripling of rice prices.
[1] Some countries responded by banning exports with the aim of keeping domestic food production for local consumption in the hope that this would reduce prices. For example, China, India, Indonesia and Vietnam imposed restrictions on grain exports in 2007 and 2008. However, as other countries became concerned that restrictions on foods exports would reduce their access to imports of foods, they also introduced food export restrictions. Combined, these actions exacerbated existing supply constraints globally, putting even greater upward pressure on prices.
[2]
Food security is defined by the U.N. Food and Agriculture Organization (FAO) as existing when “all people at all times have physical and economic access to sufficient, safe and nutritious foods to meet their dietary needs and food preferences for a healthy and active life.”
[3]
This definition captures the need for an adequate supply of nutritious foods and identifies economic access—the price of food—as a key determinant of food security. What the U.N. FAO definition does not address, however, is whether food security means the capacity to supply all foods domestically—national food security—or whether access to food does not distinguish between the origin of the food, providing scope for international trade to increase a country’s food security.
India’s National Food Security Act 2013
Following this experience with rising food prices, India adopted the National Food Security Act 2013 that stockpiles food for release into the market to mitigate prices spikes. At an estimated cost of over $18 billion, the National Food Security Act covers 75 percent of India’s rural population and 50 percent of its urban population, highlighting the scope of the challenge and the ambition of the program. As Congress Party Chief Sonya Ghandi described the Act, “our goal for the foreseeable future must be to wipe out hunger and malnutrition from our country.”
[4]
As India ranks 65 out of 79 in the Global Hunger Index, no-one can doubt the importance of these goals.
[5]
India’s National Food Security Act has two goals: increasing access to food and supporting its farmers. As India’s Commerce and Industry Minister Anand Sharma stated following the WTO Meeting last year, India “will under no circumstances compromise the fundamental issues pertaining to food security, livelihood security and the welfare of its subsistence farmers and poor.”
[6]
This reflects an Indian government view of food security as food sovereignty—the notion expressed by U.N. Special Rapporteur on the Right to Food Olivier de Schutter that states should seek food security through self-sufficiency in food production.
[7]
The limits and costs of this understanding of food security is made clear by following it to its logical conclusion, where it would lead to countries insulating food production completely from international trade, irrespective of climatic conditions, arable land and population growth—an outcome that would undoubtedly create significantly greater food insecurity. This point was highlighted by a recent World Bank report on achieving food security, which concluded that “fixating on national self-sufficiency has been costly and counter-productive.”
[8]
Such a view of food security is part of the reason why India fails to take advantage of the potential for international trade in agricultural products and foodstuffs to improve the food security of India’s poor. Agricultural imports are instead seen as in competition with the rural sector and therefore restricted using tariffs, subsidies and other non-tariff barriers. In contrast, more trade would increase choice and diversify supply, strengthening the key dimensions of food security, namely, “access to sufficient, safe and nutritious foods.”
Pursuing food security and supporting farmers also comes at significant financial cost. The government keeps prices low for consumers and high for farmers by paying for the difference. Already, India spends more on food subsidies, price support and price stabilization programs than it does on other pressing needs such as health, education and child development. The food stockpiling program will add to India’s already extensive food subsidy programs.
[9]
And despite these significant outlays, there has been little improvement in the food security of poor households in India.
[10]
Policies that seek to suppress the actual cost of food also ignore the benefits of higher food prices on wages. According to a recent World Bank report, higher food prices translate into higher wages for the poorest in India and this is a much more effective means for reducing rural poverty.
[11]
This can support greater consumption, most of which the poor spend on food, and support rural farmers in the process.
This link between prices and wages also has implications for international trade. In fact, improving India’s terms of trade for agriculture products by reducing agriculture trade barriers in developed countries is likely the most effective and least costly way of improving both food security and welfare in India.
[12]
This underlines the broader point that there is no inherent conflict between food security and international trade. Indeed, a well-functioning international market in food can strengthen India’s food security at significantly less cost than its food stockpiling program while providing new economic opportunities that can address India’s legitimate economic development needs.
Another cost to India from its approach to food security is the lost opportunities in the WTO Doha Round. It has led India to taking positions in these negotiations that are focused on defending these programs, often at the expense of other gains from the round for other sectors of its economy. For example and as noted above, India’s demand that it be allowed to purchase certain food to maintain prices and to stockpile for release into the market in the event of price spikes almost doomed the most recent WTO Ministerial Meeting in Bali in December last year. This put at risk a trade facilitation agreement—the first new multilateral agreement since the establishment of the WTO in 1995—that will produce significant benefits for developing countries such as India.
Under current WTO rules, developing countries are subject to only minimal disciplines on agriculture subsidies. However, it is unclear whether food stockpiling counts as price support for domestic producers that produces only minimal trade distortions (so-called Green Box measures) and which are allowed under the WTO, or whether it is trade distorting support (so-called Amber Box measures) and in this case must be maintained within agreed limits.
[13]
For instance, the stockpiling program could distort trade and production depending on the price farmers are paid under the program, the duration of the stockpiling, and the conditions under which food is released into the market.
The 2013 WTO Bali Outcome on Food Security
At Bali, WTO members put food security squarely on the WTO agenda. This is a positive development as the need to develop rules that can navigate the intersection of food security and international trade was highlighted by the impact of export restrictions on the food price increase in 2007-08. Moreover, and as discussed, there is important scope for trade to strengthen the food security of developing countries and to improve the welfare of its farmers.
WTO Members also agreed a Ministerial Decision on Food Security.
[14]
Under this Decision, until a solution to public stockpiling for food security purposes is found, WTO Members have agreed to refrain from challenging under the WTO Agreement on Agriculture the use by developing countries of such programs.
[15]
Developing countries also agreed that any such food security programs would not distort trade or affect the food security of other countries.
The National Food Security Act is, however, likely to create a range of incentives for the Indian government to act inconsistently with the WTO Bali Food Stockpiling Decision that food security programs “not distort trade or adversely affect the foods security of other members.” For instance, releasing stockpiles of food can reduce domestic prices and affect the competitiveness of imports. Food stockpiling also creates incentives to dump unneeded food on global markets, depressing food prices in other markets and resulting in farmers in importing countries planting less in response. And once the dumping ceases, food prices in these countries can spike due to supply constraints as increasing food production takes time, thereby reducing the food security of these countries. Additionally, when the Indian government releases stockpiled food onto the domestic market to place downward pressure on prices, the government may need to also impose export restrictions to avoid leakage of such food to overseas to markets.
The Bali decision also includes transparency and additional notifications requirements by WTO members of their food security programs to the WTO Committee on Agriculture. These commitments should help the functioning of the global food market and could signal imminent food shortages in importing countries. For this to work will require governments to notify the WTO of food shortages and propose policies to address the issue, immediately and where possible in advance. The WTO Food Stockholding Decision appears to envision this by encouraging members to notify the WTO Agriculture Committee that it is “at risk of exceeding” aggregate support limits and to provide “as soon as possible” additional statistical information including on purchases and releases of food and at what prices.
[16]
Another shortcoming with the Food Stockpiling Decision is that it does not directly address the impact of export restrictions on food security. And for the reasons discussed above rules on export restrictions of agriculture products will need to be part of any comprehensive outcome on food security. Yet the absence of an outcome on export restrictions does not mean there is a lack of WTO disciplines on export restrictions. In fact, the WTO Appellate Body decision in the China-Raw Materials case makes clear that the WTO already contains important rules on export restrictions that apply to restrictions on food taken in times of price spikes or shortages.
[17]
The China Raw Materials case concerned Chinese export restrictions on bauxite but is equally applicable to all export restrictions on goods, including those on food. The WTO Appellate Body made clear that the GATT contains important disciplines on when and how WTO members can restrict exports.
[18]
In particular, under the GATT it is not up to countries to self-determine when they face a critical shortage of food and this decision can be scrutinized by a WTO panel for its consistency with the GATT Article XI:2(a) requirement that such restrictions be to prevent or relieve “critical shortages” of food stuffs or other essential products.
[19]
The GATT also requires that such export restrictions are finite and applied for a limited time to relieve a critical shortage or to prevent or pre-empt an imminent critical shortage.
[20]
Going forward, the growth in the use of subsidies for agriculture by developing countries such as India, but also China, has created a new dynamic in the WTO Doha Round negotiations. The rules on subsidies in the WTO Agreement on Agriculture have traditionally been focused on developed country WTO members such as the United States and the EU, but the growth in subsidies by developing countries means that any new agriculture subsidies disciplines are likely to affect developing countries as well. The recent call by U.S. WTO Ambassador Michael Punke for developing countries to update the WTO on their agricultural subsidy levels reflects this new reality.
[21]
Conclusion
Addressing food security issues within the WTO—a setting the seeks to create new market access opportunities—points to a growing consensus that international trade can enhance food security by increasing access to sources of food. The recent election of Prime Minister Modi and the Bharatiya Janata Party provides an opportunity for India to reform its domestic agriculture subsidy scheme. And by focusing on the goal of food security, India could take a leadership role in designing new trade disciplines in the WTO that takes advantage of imports and new market access opportunities for its agriculture sector in the developed world to increase its food security and the welfare of its farmers. Removing the need to defend its agriculture subsidies from WTO disciplines could also create space for India to take advantage of 21st century economic opportunities arising from international trade in areas such as services and information technology, where the future of India’s economy lies.
[1] Derek Heady,” The Impact of the Global Food Crisis on Self-Assessed Foods Security”, World Bank Policy Research Paper 6329, January 2013.
[2] Derek Headey and Shenggen Fan. 2010. “Reflections on the Global Food Crisis: How Did It Happen? How Has It Hurt? And How Can We Prevent the Next One?” International Food Policy Research Institute (IFPRI), Washington, DC.
[3] FAO (1996) Declaration on World Food Security, World Food Summit, FAO, Rome
[4] http://www.abc.net.au/news/2013-08-27/an-indian-parliament-passes-food-security-bill/4914118, 27 August, 2013
[5] http://www.ifpri.org/book-8018/ourwork/researcharea/global-hunger-index
[6] http://www.ianslive.in/index.php?param=news/India_will_never_compromise_on_food_security_Anand_Sharma406358/BUSINESS/5, 28 December 2013
[7] Olivier de Schutter, “The World Trade Organization and the Post-Global Food Crisis Agenda: Putting Food Security First in the International Trading System”, Office of the UN Special Rapporteur on the Right to Food, November 2011.
[8] Hamid R. Alavi et al. “Trusting Trade and the Private Sector for Food Security in Southeast Asia”, The World Bank 2012, Washington D.C.
[9] Avinash Kishore, P.K. Joshi and John Hoddinott, “A Novel Approach to Food Security”, in 2013 Global Food Policy Report, International Food Policy Research Institute (A. Marble and H. Fritschel eds), p. 32-33
[11] Hanan G. Jacoby, “Food Prices, Wages, and Welfare in Rural India”, World Bank Policy Research Working Paper 6412, April 2013, p. 11
[13] While food stockpiling programs are deemed Green Box measures, such programs must not be trade distorting or affect production.
[14] WTO Ministerial Conference Ninth Session, “Public Stockholding for Food Security Purposes”, Ministerial Decision of 7 December 2013, WT/MIN(13)/38, 11 December 2013
[17] Robert Howse and Tim Josling, “Agricultural Export Restrictions and International Trade Law: A Way Forward”, International Food and Agricultural Trade Policy Council 2012
[18] WTO Appellate Body Decisions, “China-Measures Related to the Exportation of Various Raw Materials (China-Raw Materials)”, WT/DS394/AB/R, 30 January 2012.
[19] Robert Howse and Tim Josling, “Agricultural Export Restrictions and International Trade Law: A Way Forward”, International Food and Agricultural Trade Policy Council 2012
[20] China-Raw Materials, paras 325-330
[21] Statement by U.S. Permanent Representative to the World Trade Organization Ambassador Michael Punke at the WTO Trade Negotiations Committee, Geneva, Switzerland, April 7, 2014; at http://www.ustr.gov/about-us/press-office/press-releases/2014/April/Statement-by-Ambassador-Michael-Punke-at-WTO-Trade-Negotiations-Committee.
Commentary
Op-edImproving Indian Food Security: Why Prime Minister Modi Should Embrace the WTO
May 16, 2014