Food security and WTO rules: The need for change

The current WTO rules on agriculture make a travesty of the first Millennium Development Goal of reducing hunger. Unfortunately the Bali 'peace clause' provides only temporary relief for countries maintaining public food stockholdings and also tacitly acknowledges that such measures are 'illegal'. No compromise should be tolerated on this critical issue, says Jayati Ghosh.

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DESPITE all the talk of global power shifts and the rise of emerging economies, the WTO ministerial meeting at Bali once again forced developing countries on to the back foot despite having both reason and ethics on their side. The inability to close a deal in Geneva before the Bali meeting reflected the intransigence of some governments (the US in particular) which, in the face of what seem to be fairly commonsense and fair proposals to rectify very large anomalies in the current trade rules, demand a pound of flesh in return for every such 'concession'. And the final settlement - now being heralded as a 'breakthrough' that will supposedly benefit developing countries - is another reaffirmation of how global power is still so unequally distributed.

The 'Doha Development Round' of trade talks is all but dead, and only two issues survived to merit serious consideration at Bali. One is 'trade facilitation' - the harmonising and standardising of customs rules and procedures that is a Northern agenda for easing up import practices across the world. There are the usual noises being made about how this will dramatically increase both trade and employment in the world, on the basis of spurious empirical exercises. The other issue is more central: the developing-country focus on agricultural subsidies, which affects the livelihoods and food security of more than half the world's population. Unfortunately, some powerful developed countries have demanded acceptance of the former while refusing to make even the most obvious adjustments to meet the latter.

Food and livelihood insecurity

The global economic context of this discussion needs to be understood. Since the WTO's Agreement on Agriculture was formulated, world trade patterns have changed greatly. Most of the current forces operating to distort agricultural trade are not adequately addressed in the existing trade regime. Supports provided by developed countries to their farmers and agribusinesses are now mostly classified as 'non-distorting' measures, and they remain very high. A small number of giant multinational agribusinesses now dominate global trade and food distribution even more than before and marketing margins have increased. Financial companies are involved in commodity futures markets, causing even commercial players to behave in speculative ways and creating volatile price movements that do not always reflect changes in 'real' demand and supply.

Increasing uncertainty and volatility in global food trade, especially since 2006, have operated against both small producers (who do not benefit from price increases and lose out when price declines with import surges) and poor consumers who face much higher prices. In many developing countries this has created two linked problems: food insecurity because of high and volatile food prices, and livelihood insecurity of food producers because of rising costs and uncertain price movements.

This means that the global trade regime should address the problems of excessive concentration in global food markets, persistently high levels of subsidies given to agriculture in developed countries and price volatility caused by speculative activity. But while these issues remain unsolved, developing countries must find some means to cope and to ensure food and livelihood security for their citizens. This involves enabling more domestic food production, particularly through support to small farmers by providing access to credit, technology, inputs and assured markets with stable prices; and making food affordable for low-income consumers.

This may require encouraging more domestic food production through various incentives and subsidies if necessary, as well as ensuring the proper distribution of adequate nutritious food to make minimum quantities of it accessible for all. But such measures can come up against existing WTO rules, particularly with respect to public support for agriculture. It is the skewed and unbalanced nature of constraints on such support that is the concern - as developed countries are effectively allowed huge levels of domestic subsidies while developing countries struggle to remain within minimal legal levels.

The WTO recognises three kinds of domestic support to farmers. 'Amber Box' measures like administered support prices or subsidies directly related to production quantities are considered as trade-distorting. The 30 (mostly developed) countries that had notified such support during 1986-88 were required to bring them down by 36%; other countries are allowed to provide such subsidies only 'de minimis' - up to 10% of value of output for developing countries and 5% for developed countries.

'Blue Box' measures of support are 'Amber Box with conditions' - supposedly designed to reduce distortions - and currently subject to a ceiling of 8% of the value of production. 'Green Box' subsidies are not product-specific, direct income support for farmers that are decoupled from production or prices, policies for environmental protection or regional development. They are not considered to distort trade and are therefore not subject to any conditions. Most developed countries have shifted to relying more on Green Box subsidies for agriculture, so they continue to provide very large support to their farmers without breaching WTO commitments.

Crop-specific subsidies

However, for developing countries trying to ensure food security, it may be necessary to provide crop-specific subsidies, so as to persuade and help farmers to cultivate food crops and to ensure affordability to consumers. Administered prices and public procurement can be essential policy instruments for improving national capacities to guarantee food security by stimulating improved efficiency, productivity, resilience, competitiveness and sustainability of national food production. So it is important to expand the definition of Green Box support to take account of these specific needs of developing countries, and take note of the fact that most food crops for food security programmes are acquired from low-income, resource-poor farmers.

But since such compensating measures can come up against existing WTO rules that do not allow crop-specific interventions unless they have already been recorded (as is the case for developed countries with high levels of subsidies), they have been opposed by developed countries. Thus, India's recent law that seeks to provide food security to one of the largest undernourished populations in the world has already been challenged by the US in the WTO, even though India's scheme would cost a small fraction of what the US provides a much smaller number in food subsidies.

To prevent such unfair possibilities, the G33 group of developing countries has suggested an additional Green Box category to cover 'policies and services related to farmer settlement, land reform programmes, rural development and rural livelihood security in developing country Members, such as provision of infrastructural services, land rehabilitation, soil conservation and resource management, drought management and flood control, rural employment programmes, nutritional food security, issuance of property titles and settlement programmes, to promote rural development and poverty alleviation'. This could be expanded to allow marketing boards and supply management schemes to be established, because these are often essential for food and livelihood security.

Another concern for developing countries is that public stockholding of food is also counted in the aggregate support measures subject to the 10% ceiling. But holding grain reserves can be essential to maintain domestic food security programmes and to guard against sudden movements in global food prices. Ideally, this should also be seen as a Green Box measure, especially if it is public stockholding of staple crops designed for domestic consumption. It should be possible to incorporate safeguards or guarantees that prevent possible spillover effects on global markets.

Further, currently the WTO uses the 1986-88 external reference price for calculating support, which is clearly outdated. This needs to be revised to take into account the significant food price inflation since then.  One possibility is to take the average price of the previous year or a three-year rolling average. At the very least, the excessive rates of inflation (higher than 4%) should be used when calculating the contribution of food stockholding programmes and other policies in total farm support at the WTO. But developed countries have refused to agree to this because 'it will open up the agreement'!

Unfortunately, none of these eminently sensible suggestions was accepted by the developed countries at the Bali meeting. Instead, the final declaration only contained a 'peace clause' that will temporarily suspend WTO actions on countries that exceed the de minimis limit. This amounts to an acceptance that such measures are 'illegal', and provides only a limited period of relief. Developing countries have tried to put a brave face on this, arguing that it has been accepted only as a transitional measure towards full recognition of the legitimacy of such programmes to ensure food security. But until the negotiations on this are completed, we will not know whether this has been in their long-term interest. And in the meantime, countries like India will be forced to engage in complicated, tedious and very expensive reporting of all their subsidies and values, so as to enable 'monitoring' of their subsidies.

The current rules make a travesty of the first Millennium Development Goal of reducing hunger. If the world community is truly concerned about this, there is no way it should let unfair trade rules reduce the ability of developing countries to do something about improving food security. As the UN Special Rapporteur on the Right to Food has noted, 'In no circumstances should trade commitments be allowed to restrict a country's ability to adopt measures guaranteeing national food security and the right to adequate food: a waiver to allow the adoption of such measures should be envisaged.' People everywhere need to make this a much more vital issue on which no compromise can be tolerated.                                             

Jayati Ghosh is an economics professor at Jawaharlal Nehru University in New Delhi.

*Third World Resurgence No. 281/282, January/February 2014, pp 37-38