The Bali ministerial conference in December presents a crucial opportunity to bring about changes in WTO rules
Ending hunger and poverty requires major national policy initiatives in developing countries. The United Nations Secretary-General has articulated a broad zero hunger vision, endorsed and embraced as a priority by national leaders in many developing countries in Latin America, Africa and Asia. Production of food by small cultivators in developing countries has a critical role to play in ending world hunger. But to increase support for smallholder agriculture in developing countries, a revision of World Trade Organization (WTO) rules on agricultural price support is necessary.
Developed countries had very high support levels for agriculture when the Uruguay Round agreement was signed in 1994. Despite restrictions imposed under the agreement, most developed countries have retained high levels of support for agriculture by shifting most of their subsidies to the unlimited “Green Box” forms of support, not restricted by the Agreement on Agriculture.
In contrast, owing to fiscal constraints, developing countries generally had much lower levels of support for agriculture when the agreement was signed. Due to constraints imposed by the Agreement, the levels of support for agriculture in most developing countries have barely been allowed to increase since then.
Green Box subsidies in developed countries, although not directly linked to levels of production, have helped their farmers to innovate, invest and increase productivity by providing additional resources for investment and by effectively reducing risks associated with the investment. Such support has also extended social protection to the countryside. On the other hand, lacking comparable levels of support, cultivation by small producers in developing countries has become even less viable and uncompetitive.
The WTO does not restrict Green Box types of support to agriculture. However, administrative and other constraints limit the possibility and feasibility of developing countries using Green Box subsidies. WTO provisions for policy instruments such as crop insurance to be counted under Green Box are extremely restrictive. Green Box measures such as decoupled payments — lump cash transfers to farmers — are not feasible in most developing countries because of domestic governance bottlenecks such as the absence of data, a lack of well-defined land titles, prevalence of informal markets, frequent market failures, and insufficient development of rural financial institutions.
Relevance of price support
As a result, Green Box provisions only allow most developing countries very limited scope for affordable interventions. China, Brazil and a few countries from the Cairns group (for example, Thailand and South Africa) are the only ones that have reported substantial Green Box subsidies at different points of time. With the notable exception of China, their use has been minimal or has declined over time in most developing countries.
Given the limited relevance of Green Box subsidies, price support remains an important instrument for supporting smallholder agriculture in developing countries. It has become an increasingly popular means for mitigating price volatility, which has become a major concern since the price spikes of 2007-2008, 2010-2011 and 2012. Consumer price subsidies combined with public procurement and stockholding helped mitigate the full impact of price spikes on consumers in several developing countries.
Global prices for agricultural commodities have risen steeply since the Uruguay Round was negotiated, especially in the new century. The FAO food price index more than doubled between 2002 and 2012, rising from 89.9 to 211.8.
Under the Uruguay Round agreement, price support was considered trade- distorting and was classified under the “Amber Box.” For countries without a positive Aggregate Measure of Support (AMS), Amber Box subsidies were limited at the de minimis level, defined as five per cent of the current value of output for developed countries and 10 per cent of the current value of output for developing countries.
Thirty countries that reported higher base levels of Amber Box subsidies at the time of the agreement than the de minimis limit, committed to schedules for bringing Amber Box subsidies down towards the de minimis limit.
Under the current rules, the difference between prices offered by a public procurement programme and prices prevailing in 1986-1988 is multiplied by the total output potentially eligible for support (not the actual quantity procured) to calculate the level of price support provided by a country. The price support thus computed is considered a part of the Amber Box subsidies, subject to the de minimis restriction.
Since current world price levels are much higher than the 1986-1988 reference prices, any price support provided at prices anywhere near current world market prices results in the violation of the de minimis restrictions under current WTO rules.
The Ninth Ministerial Conference of WTO is to be held in Bali in the first week of December. The Bali Ministerial presents a crucial opportunity to bring about changes in WTO rules so that developing countries can support small farmers and move towards ending hunger. G33 and other groups of developing countries have made several proposals over the last year demanding that the WTO rules on price support be revised.
These options should be considered in the negotiations:
reduce disparities in permissible agricultural support levels between developed and developing countries;
update reference prices (presently pegged at 1986-1988 nominal prices) to account for global inflation in food prices;
compute levels of price support using actual quantity procured rather than total quantity eligible for procurement;
provide exemption from restrictions for procurement on grounds of food security or support for poor producers.
Appropriate restrictions can be introduced to ensure that commodities thus procured are used only to mitigate volatility in domestic markets and for purposes of domestic food security. This can effectively prevent the possibility of using procured stocks to influence international markets.
It is important to move speedily towards a pragmatic and equitable resolution of the problem. The options outlined above provide an opportunity to achieve real gains towards the goals of supporting smallholder agriculture and ending hunger. This will help expedite the conclusion of the already protracted Doha Round of trade negotiations on a more developmental basis.
(Vikas Rawal is associate professor, Jawaharlal Nehru University, and senior consultant, Economic and Social Development Department, Food and Agriculture Organization of the United Nations. The views that are expressed here are personal.)