O, Farmers ! Attempt Out of the Box Thinking To Find A Lasting Solution Beyond Minimum Support Price – By Pavithran

This article was written on the basis of a thought provoking essay under the heading “The WTO’s Challenge to MSP Is another Frontier to Cross” by Prabhash Ranjani published in The Hindu of 17 – 12 – 2021.

The Author had suggested a new practical and permanent solution for the procurement to the Farmers Produce and the various aspects explained are really undisputable and worth implementing which will definitely benefit the farmers.

Index of Abbreviations used in this Article:

MSP – Minimum Support Price

WTO – World Trade Organization

AOA – Agreement on Agriculture (pertains to WTO)

AMS – Aggregate Measurement of Support (pertains to WTO)

ERP – External Reference Price (pertains to WTO).

 Agitating Farmers main demand is a legal guarantee for MSP.

India is WTO member country and hence any legal guarantee for MSP   should not violate international law  obligations enshrined in AOA of WTO.

 AOA’s objective is to cut trade-distorting domestic support to agriculture by way of various subsidies.

There are three categories of subsidies:

Green Box, Blue Box and Amber Box.

Green Box – Income Support decoupled from production.

Blue Box – Direct Payments under production limiting programmes.

Amber Box – Price Support for procurement of crops at MSP.

Subsidies provided under Green and Blue Boxes are considered Non-Trade Distorting, while the subsidies under Amber Box falls under the category of Trade Distorting.

Trade Distortion is computed on the basis of AMS. AMS is the total of product’s specific support (price support to a particular crop) and non-product specific support (fertilizer subsidy).

Under Article 6.4 (b) of AOA, India, as a developing country, is allowed to provide a de minimis limit which is capped at 10% of the total value of production of the product in respect of a product specific subsidy and at 10% of the total value of a country’s agricultural production in case of non-product subsidy.

Subsidies breaching the de minimis cap are trade distorting and are to be accounted for in AMS.

Hence AOA becomes a stumbling block to increase procurement price of agricultural produce under MSP.

Unless AOA is amended to provide adequate policy space to run an MSP backed food security programme, the limitation of MSP needs to be addressed.

But one saving clause for all developing countries for MSP comes in the form of Peace Clause. The peace clause forbids bringing legal challenges against price support based procurement for food security purposes even if it breaches the limit on domestic support.

But the clause is restricted only to procuring food to provide free ration through the Public Distribution System.

India in 2019-20 gave subsidies worth $6.31 billion for rice production of $46.07 billion – which works out to 13.6 % of the total value of production as against the de minimis level of 10%.

 Even if the AOA is amended to exclude MSP backed procurement for other crops at prices higher that the fixed ERP would be considered trade distorting and thus subject to the deminimis limit.

Therefore, India needs to recalibrate its agricultural support programme to make use of the flexibilities available in the AOA.

Some Alternatives:

India can move away from price-based support in the form of MSP to income-based support, which will not be trade distorting under the AOA provided the income support is not linked to production.

The author ends his article with these words:

“The Government needs to engage with the farmers and create an affable environment to convince them of other effective policy interventions, beyond MSP, that are fiscally prudent and WTO compatible.”

As of now and as I see the moods of the agitating farmers, MSP is their trump card which they may not give up easily.