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On the WTO’s Public Stock-Holding (PSH) Program

Context:

The quest for a lasting resolution to the Public Stock-Holding (PSH) program presents a formidable challenge. During a meeting of the Committee on Agriculture (CoA) at the World Trade Organization (WTO) held recently, the European Union (EU) surprisingly expressed willingness to entertain India’s plea for a permanent solution to the PSH program for food security, marking a significant shift from the stance taken earlier.

Relevance:

GS-2

Government Policies and Interventions

GS3-

  • Issues related to Direct and Indirect Farm Subsidies and Minimum Support Prices
  • Public Distribution System – Objectives, Functioning, Limitations, Revamping
  • Issues of Buffer Stocks and Food Security
  • Important International Institutions
  • Deglobalisation and Protectionism

Mains Question:

Highlighting its origin, discuss the necessity of a Permanent solution to Public Stock-Holding program and its associated challenges. (15 Marks, 250 Words).

About the Public Stock-Holding (PSH) Program:

  • The PSH program involves government agencies like the Food Corporation of India (FCI) purchasing agricultural produce from farmers at the minimum support price (MSP) and distributing it at subsidized rates to cater to the needs of India’s underprivileged population under the National Food Security Act (NFSA) enacted in 2013.
  • The excess of MSP and associated costs over the sale realization is subsidized by the Union Budget.
  • This subsidy can be categorized into two components: subsidy to the farmer (product-specific subsidy) and subsidy to the food consumer.
  • The WTO is primarily concerned with the former, labeled as “product-specific” subsidies, as they potentially distort international trade.
  • The Agreement on Agriculture (AoA), effective since 1995, caps the total of product and non-product-specific subsidies, or aggregate measurement support (AMS), at 10 percent of the value of agricultural production for developing countries (5 percent for developed countries). Breaching this threshold is considered a violation.
  • India, along with other developing countries, has been striving to address this situation at the WTO for over a decade.
  • The 9th Ministerial Conference held in Bali in 2013 granted a “peace clause,” allowing developing countries to exceed the 10 percent cap without challenge until a permanent solution was found, as long as the subsidies were not deemed “trade-distorting.” However, this provision comes with certain conditions and does not cover programs initiated after 2013.
  • India has invoked the ‘peace clause’ multiple times, especially concerning rice subsidies, but developed countries have raised objections, urging greater transparency and safeguards against ‘illegitimate’ exports. It is evident that this situation cannot persist indefinitely.

Stance of Various Countries on the PSH:

  • While the USA and EU advocate for a comprehensive discourse on agriculture, covering aspects such as the value chain, market access, and export restrictions alongside the PSH program, India has firmly asserted that it will not engage in negotiations on any other agricultural issues until a permanent solution for PSH is reached.
  • India has also made it clear that the support measures provided to its impoverished farmers, including input subsidies for electricity, irrigation, fertilizer, and direct transfers, are non-negotiable.
  • A permanent solution must be sought within a defined timeframe. Although the General Council in December 2014 deferred the deadline set in Bali (2013) indefinitely, India’s insistence on a deadline for the 13th MC is justifiable.

Challenges Associated:

  • Attempting to separate PSH from a comprehensive examination of agriculture may not be the most prudent approach. The PSH program involves the entire supply chain, encompassing procurement, handling, storage, distribution, and more. Hence, issues related to market access and domestic and international sales cannot be disregarded in this context.
  • India’s Public Stock-Holding (PSH) program operates on an indefinite basis, where government agencies acquire significant quantities of wheat and rice from farmers at continuously rising Minimum Support Prices (MSP).
  • These procurements, driven by political considerations for garnering votes, result in surplus stocks held by agencies.
  • These excess stocks are then auctioned to private traders through the Open Market Sale Scheme (OMSS). In the OMSS, all bidders are compelled to commit that they will not export the procured goods.
  • The question arises as to whether a simple declaration from private traders obtaining such stocks would satisfy the concerns of developed countries.
  • Instances of heavily subsidized, now free, food being illicitly transported to neighboring nations have been observed, causing disruptions in the global demand-supply dynamics.

Way Forward:

  • India should adopt a transparent approach and engage in discussions. The calculation formula for Aggregate Measurement Support (AMS) under the Agreement on Agriculture (AoA) is acknowledged to have several flaws.
  • The External Reference Price (ERP) used for comparing with MSP, though current, dates back to 1986-88. This historical reference is likely to artificially inflate the subsidy. By incorporating the current ERP, India’s subsidy would automatically fall below the 10 percent threshold.
  • Additionally, the AoA calculation does not exempt subsidies provided to resource-poor farmers who primarily produce for self-consumption, eliminating any surplus for sale.
  • Consequently, the concern of subsidies to them distorting trade is irrelevant. Excluding them from the calculation would also decrease the AMS.

Conclusion:

In the interim, the government should terminate the open-ended procurement policy and limit purchases to what is necessary for distributing to National Food Security Act (NFSA) beneficiaries. Consideration should also be given to transitioning to a ‘cash subsidy’ model using Direct Benefit Transfer (DBT) mode.


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