Farmers protest: Navigating MSP and food security dilemma

One of their demands is the withdrawal of India from the World Trade Organization (WTO). This is due to the agreement on agriculture (AoA) which minimizes government support and subsidies given to agriculture. However, it poses a dilemma for the government as withdrawal from the WTO would mean deteriorating relations with the West, while remaining in the organization could impact the ruling party’s vote share in the upcoming elections.

Ongoing protests

On 14 September, 2020 three bills were introduced in the Lok Sabha to bring reforms in the agriculture sector. This led to huge protests across the country by various farmers’ unions. This was further bolstered by the support from the Indian diaspora and foreign personalities like Greta Thunberg, and Rihanna. 

The protests then were mainly targeted at the withdrawal of the black bills along with surety to grant minimum support price (MSP) to farmers. Farmers also demanded the implementation of the suggestions by the Swaminathan committee. The committee, besides suggesting that “agriculture” be included in the Concurrent List recommended the implementation of MSP for all crops. It further suggested that MSP should be granted for more than half the weighted average cost of production.

However, the protests were met with violent measures and at least 700 farmers lost their lives following clashes. After protesting for at least a year, the Centre decided to withdraw the black bills. It also assented to ancillary demands of farmers. This move was touted by the opposition as ‘votebank politics’ in light of elections in Uttar Pradesh and Punjab during that time period. Farmers comprise majority of the voting population in an agrarian state like India. Thus, going against their wishes could mean losing the elections for the ruling party.

However, despite repeated assurance by the Centre and no decisions for almost a year, the farmers have decided to protest again and announced their ‘Delhi Chalo’ march. Barricades and concrete were placed at the Delhi-Haryana and Delhi-West Uttar Pradesh border to prevent protesting farmers from entering the national capital. Five farmers have lost their lives in the clashes between the protesters and the security forces.

WTO agreement on agriculture

In the context of making the global agricultural sector less trade distortive and fair competition among the developed, developing and least developing economies, WTO proposed the enactment of the Agreement on Agriculture. It was introduced to make trade in agriculture market oriented by eliminating the barriers resulting from disparity in the measures pertaining to market support, export subsidy, input-based subsidies and other support given by different members of the WTO to their domestic industries. 

This was enacted with the anticipated outcome of augmentation in the export prices, specifically for the small farmers, based in countries with lower levels of economies. However, on the one end of the spectrum, where the developing countries are expected to reduce their subsidy commitments to the domestic agricultural sector and thus, exposing the small and marginalised farmers to the distortive trade competition from countries with highly mechanised farm sector. The US has inadvertently been one of the biggest beneficiaries of the agreement, wherein around 70% of its support to the domestic industry is being regarded as not distorting international trade.

As per the agreement, the support to the domestic industry in agriculture would be measured in terms of Aggregate Measurement of Support (AMS), which is defined under Article 1(a) of AoA. It measures the aggregate annual support being provided in favour of the producers of the basic agricultural product and also, the non-product specific support provided to the agricultural producers in general. 

Under what has been termed as “green box” exemptions, any support that has been provided in furtherance of the objectives enlisted in Annex 2 of the Agreement will not be considered to have a trade-distorting impact. To qualify as an exempted subsidy under Annex 2, the actions must come as a publicly-funded government program devoid of any transfer from the consumer and it should not result in providing price support to the domestic farmers. Government support for public food stockholding, environmental research and development, structural adjustment assistance, pest and disease control and inspection services among other such measures.

Calculation of subsidy that favours developed countries

Coming to the calculation of AMS, which is instrumental in determining the extent of support provided to domestic farmers. The calculation under AMS is done at two levels. Firstly, it looks at each product that is receiving the support and secondly, it aggregates the total of the support provided in monetary terms. This is based upon the consideration that providing subsidies leads to a change in the supply. Thus, it creates an adverse effect on the global price for that product in the international market.

Arguably, the formulation of the Agreement on Agriculture was done with the intention of providing reasonable prices for the farmers at the global level by minimizing the trade distortive measures. However, how the agreement has been put forth, negotiated, and subsequently interpreted at WTO forums resulted in widening the gap between the developing and developed countries in the agricultural sector in the favour of latter. It has not incorporated the special circumstances of the developing countries to meet their food security requirements and sustenance. 

The 2011 census data reveals that 263 million people in India were involved in agricultural activities and out of this, 144 million were landless peasants. Compared to the US, which has only 10% of its total population engaged in agricultural activity, it is 60% in India. Similarly, while the average farm size in the US is around 444 acres, in India, it is merely 3 acres. Thus, a large dependence of the population on agriculture with a meagre average land holding makes Indian farmers vulnerable.

Based on these comparative advantages, developed countries strategically provide subsidies not directly to purchase crops or based on the volume of production, thus keeping it outside the purview of “amber box” subsidy, where they have to commit reductions to meet the de minimus level. 

Both the US and European Union have resorted to provisions like safety net measures and risk insurance schemes, which, though led to increased levels of production, fall under the “green box”. The “green box” constitutes non-distorting domestic support and thus, is non-actionable. 

Challenge of food security in India

The Cairns Group, comprising 19 influential agricultural exporting countries, has raised concerns at WTO forum that India’s MSP regime and public stockholding programme has a distorting impact on global food prices.

Contrary to this, the possibility of India exporting its reserves of foodgrains acquired through public procurement scheme is untenable. In consonance with the aims and objectives of the National Food Security Act, 2013, the public distribution system (PDS) are utilised in various welfare schemes of the government to ensure food availability and poverty alleviation. Further, India’s export price for products like, wheat has been higher in the international market than the cost of procurement.

What should be India’s stance at WTO forums?

India should strive to lead the negotiations to raise trade and agriculture-related concerns of the global south at various WTO platforms. This can include renegotiating the rules of Uruguay round pertaining to MSP so that developing countries are able to accommodate the need to meet the twin objectives of providing increased and stable price for small and marginalised farmers and ensure food security for vulnerable populations below the poverty line. However, there was no substantial outcome even at the recently concluded 13th ministerial conference in Abu Dhabi.

The fixed external reference price (FERP), which is used for calculating AMS should be revised from its current level of prices, as it was in 1986-87, to reflect better the inflations which would have taken place during this course of time. FERP signifies the price of a particular commodity in the international market. 

Further, paragraph 8 of Annexure 3 of AOA must be restructured to consider only such quantity of production that actually received MSP, rather than considering the quantity that is eligible to receive the support price. India should make the voices of farmers heard at the WTO platform and take further steps towards guaranteed MSP.

Nandini Arya and Jayam Jha are convenors at Centre for Research in Governance, Institutions and Public Policy, National Law University, Jodhpur. Views are personal.

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Published: 12 Mar 2024, 03:23 PM IST