Support to agricultural producers in India

and the rules of the WTO(updated presentation)

Lars Brink

Symposium Re-Visiting National Agriculture PolicyInternational Association of Agricultural Economists IAAEIndian Society of Agricultural Economics ISAEAcharya N.G. Ranga Agricultural University ANGRAUNational Institute of Agricultural Extension Management MANAGE 12-13 October 2014, Hyderabad, India Lars.Brink@hotmail.com

– Support from domestic measures only • General services, payments, subsidies, administered prices

• Not border measures: tariffs, export subsidies, etc.

– Two kinds of domestic support• Not limited: green box, blue box, Article 6.2

• Limited: everything else

– Measure support in particular ways• AMSs Aggregate Measurements of Support

– Price gap support

– Payments, subsidies

Domestic support in the WTO

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2

– 1986-88 submission AGST

• Establishes data and methods for later notifications

• Price gaps in 19 product-specific AMSs– Administered prices INR/tonne

– Reference prices INR/tonne

• Multiply by “eligible production”: total production

• Generates WTO market price support

• All product-specific AMSs negative in 1986-88

– Latest notification for 2010

• Need for up to date information on policies and support

India’s WTO domestic support

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– Major issue called “notified in USD”

• Even more major issue is:

• Which reference price?– Fixed 1986-88?

– Continually raised in proportion to currency depreciation?

– Effect of India’s new method

• Raises reference price in INR/tonne, not in USD/tonne

• Result: price gap is negative or just tiny

• Therefore no product-specific AMSs in 1995-2003– Very few in 2004-2010

India’s notifications questioned in WTO

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– 4 crops: rice, wheat, cotton, sugarcane

– 4 price gap scenariosI. Fixed external reference price FERP in INR/tonne

II. Deflate price gap by inflation

III. Inflate reference price (no longer fixed) by inflation

IV. Increase reference price (no longer fixed) by currency depreciation

– 2 eligible production scenarios• Total production

• Government procurement

32* PS AMS calculations for 1995-2013

Lars Brink

5*Effectively less than 32 because no procurement of sugarcane and negative gaps in some scenarios.

Lars Brink

6-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Price gap: rice

I: using FERP

INR/tonne

Lars Brink

7-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Price gap: rice

I: using FERP

II: Deflated gap using FERP

INR/tonne

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8-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Price gap: rice

I: using FERP

II: Deflated gap using FERP

III: Using inflation adjusted ERP

INR/tonne

Lars Brink

9-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Price gap: rice

I: using FERP

II: Deflated gap using FERP

III: Using inflation adjusted ERP

IV: Using INR/USD adjusted ERP

INR/tonne

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10

-

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

AMS: rice

I: FERP; production

I: FERP; procurement

10% of VOP

INR billion

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-

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

AMS: rice

I: FERP; production

II: Deflated FERP gap; production

II: Deflated FERP gap; procurement

10% of VOP

INR billion

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12

-

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

AMS: rice

I: FERP; production

IV: INR/USD adjusted ERP; production

IV: INR/USD adjusted ERP; procurement

10% of VOP

INR billion

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13

-

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

AMS: rice

I: FERP; production

I: FERP; procurement

II: Deflated FERP gap; production

II: Deflated FERP gap; procurement

IV: INR/USD adjusted ERP; production

IV: INR/USD adjusted ERP; procurement

10% of VOP

INR billion

– Deviating from WTO rules and 1986-88 precedent …

• … matters greatly for India’s apparent de minimis compliance– Converting reference price and minimum support price with different

exchange rates makes price gap negative or very small

– Multiplying price gap by only procurement makes AMS very small

– Need both deviations to make 2008-2013 rice AMS go below de minimis

» Black dashed line in chart – still close to de minimis in 2011 and 2012

• Similar story for wheat and cotton

• Sugarcane: AMS much above de minimis in all scenarios– Multiply price gap only by production, since sugarcane not procured

Why deviate from rules and precedent?

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– Economic support vs. WTO penalty for using administered price

– Meaning of

• “taking into account” 1986-88 method?

• “fixed external reference price”?

– Inflation adjustment not allowed in notifications

• But CoAg must give due consideration to excessive inflation

• How to give consideration to any excessive inflation?

Legal interpretation matters

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– Allows unlimited increases in administered prices …

• … in some situations: acquisition at administered prices, etc.– Rules about transparency and trade distortions

• No threat of challenge through WTO dispute

– Will India use new policy space to raise admin. prices?

• Shift from little to much more support of farm prices?

– Increasing farm support in large developing countries

• China, Indonesia, Brazil; not South Africa, Chile

• India’s input subsidies exceeded USD 29 billion in 2010– WTO compatibility?

Bali: no change in Agreement on Agr.

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– Administered prices are at root of India’s problem

• Not level but use– Past administered prices have been close to international prices

• Agreement effectively penalizes use of administered prices– Must calculate price gap element in AMS

– If no administered price, no price gap element in AMS

– Buy or procure at market prices

• No need to calculate price gap element– Even if domestic market prices exceed international prices

• E.g., through tariff protection

– Need analysis of alternative policies for acquiring food stocks

Bottom line

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Thank you!Lars.Brink@hotmail.com

References

Brink, L. 2015 (forthcoming) Support to agricultural producers in India and the rules of the WTO. Contributed paper, Symposium “Re-Visiting National Agriculture Policy”, Hyderabad, India, 12-13 October 2014.

Brink, L. 2014. Support to agriculture in India in 1995-2013 and the rules of the WTO. Working paper 14-01, International Agricultural Trade Research Consortium (IATRC). http://ageconsearch.umn.edu/bitstream/166343/2/WP%2014-01%20Brink.pdf

Brink, L. 2014. Evolution of trade-distorting domestic support. In R. Meléndez-Ortiz, C. Bellman and J. Hepburn (eds.). Tackling Agriculture in the Post-Bali Context. Geneva: International Centre for Trade and Sustainable Development (ICTSD). http://www.ictsd.org/themes/agriculture/research/tackling-agriculture-in-the-post-bali-context-a-collection-of-short

Brink, L. 2011. The WTO Disciplines on domestic support. In WTO Disciplines on Agricultural Support: Seeking a Fair Basis for Trade, ed. D. Orden, D. Blandford and T. Josling. Cambridge: Cambridge University Press.

Brink, L. 2009. WTO constraints on domestic support in agriculture: past and future. Canadian Journal of Agricultural Economics 57(1): 1-21. DOI: 10.1111/j.1744-7976.2008.01135.x

World Trade Organization. 2014. Notification. G/AG/N/IND/10, Committee on Agriculture, 10 September.

With grateful acknowledgement of financial support from the Global Issues Initiative of the Institute for Society, Culture and Environment, Virginia Tech