Agriculture and India: Public Stockholding to the Sugar Dispute

In one line

India supports its farmers through minimum prices and public stockholding, both of which count as trade distorting support under a formula written for a different kind of agriculture, and it has lost the case that tested it.

In exam wording: India's agricultural support measures engage the Agreement on Agriculture at three points, the calculation of market price support within the Aggregate Measurement of Support, the treatment of public stockholding for food security under Annex 2, and the prohibition on export subsidies in Article 3.3 and Article 9.

The three Indian instruments

Minimum support prices. The Central Government announces prices for a range of crops on the recommendation of the Commission for Agricultural Costs and Prices, and public agencies procure at those prices. For sugarcane the mechanism is statutory: the Fair and Remunerative Price fixed under the Sugarcane (Control) Order 1966, with several States fixing higher State Advised Prices, and sugar mills legally obliged to pay them to growers.

Public stockholding for food security. Grain procured at those prices is stored and distributed through the public distribution system under the National Food Security Act 2013.

Input subsidies, principally on fertiliser, power and irrigation.

Why the formula bites

Market price support is not measured by what the government spends. Under Annex 3 to the Agreement, it is calculated as the gap between an applied administered price and a fixed external reference price, multiplied by the quantity of production eligible to receive the administered price.

Three features of that formula produce India's difficulty.

The external reference price is fixed at the 1986 to 1988 average, in the currency chosen, and never updated. Three decades of inflation therefore widen the calculated gap even where the real support has not changed.

The multiplier is eligible production, not procured quantity on the reading applied against India, so support is attributed to output the government never bought.

And the de minimis is a percentage of the value of production, ten per cent for a developing member under Article 6.4(b), so a large support price on a large crop can breach it even where the fiscal cost is modest.

India has no scheduled AMS commitment, having declared none in the Uruguay Round, so it may not provide product specific support exceeding de minimis at all. That is the whole legal position in one sentence.

The Bali peace clause

At the Ninth Ministerial Conference in December 2013, members agreed an interim solution. Members would refrain from challenging, through dispute settlement, a developing member's breach of its de minimis limit arising from public stockholding programmes for food security purposes existing at the date of the decision, subject to notification, transparency and anti-circumvention conditions, pending a permanent solution.