On November 11, 2024, the World Trade Organization (WTO) circulated a submission submitted by the US, Argentina, Australia, Canada and Ukraine, alleging that India appears to be providing significant market price support for wheat. and rice. This communication relates to agricultural years (MY) 2021-22 and 2022-23 and notes that the support is substantially higher than what India had previously notified. The sponsors of this communication have expressed their interest in discussing the issue at the WTO. In essence, India’s entire minimum support price (MSP) regime for wheat and rice has once again been questioned.
A recurring theme
This is not the first time that the United States has submitted a communication on this matter. In May 2018, a similar document was submitted to the WTO Committee on Agriculture at the request of the US. Subsequently, on June 6, 2018, the WTO compiled a series of questions asked by the United States regarding domestic support to wheat and rice through the MSP regime.
On January 23, 2022, 27 members of the US Congress wrote to the US Trade Representative and the Secretary of Agriculture under the Biden Administration to hold India accountable for MSP support for wheat and rice. Later on July 1, 2022, four Congressmen requested President Biden that India’s MSP regime be considered as a dangerous factor distorting global trade, negatively impacting American farmers.
Why does India’s support seem so high?
There are three main reasons why support for wheat and rice in India appears higher than it really is:
- WTO estimation methodology
The WTO uses a methodology that compares prices from the year 2022/23 with those from 1986-88. The level of price support for a crop is estimated as the difference between the administered or current price of the crop and an external reference price. However, this comparison does not account for inflation, which inevitably makes current prices appear much higher relative to those of 36 years ago. - Calculation based on total production and not on the quantity actually purchased
The value of support per ton of grain is multiplied by the total crop production to calculate the Aggregate Measure of Support (AMS). The problem is that this calculation assumes that the entire crop benefits from the MSP, instead of only accounting for the amount purchased by the government. This approach artificially raises support numbers. - Use of the Indian rupee as a reference without adjustment for depreciation
The US calculates support using the 1986-89 USD-INR exchange rate, without considering the depreciation of the Indian rupee since then. This considerably overstates the estimated support.
The context of farmers in India
India has approximately 145 million farmers, of which 86% have land of less than two hectares. According to the NAFIS report, these farmers earn on average about 12,698 INR per month, which is equivalent to approximately 1,52,376 INR per year (about 2059 USD at the 2022 exchange rate). With an average household size of 4.2 people, the annual per capita income of agricultural households is less than 500 USD, reflecting their limited economic capacity.
Additionally, Indian agriculture faces increasing threats due to climate change, such as scorching summers, erratic monsoons, shorter and warmer winters, and pests. There is consensus among policymakers on the need to discourage rice production in water-stressed regions, which could be a key focus in the future.
Global trade versus Indian food security
Although exporting countries like the US see India’s MSP regime as a distorting factor in global trade, India struggles to ensure its own food security. The export of wheat and rice has been restricted for more than two years due to lower production.
India poses no real challenge to major wheat exporters as its share of global agricultural exports is only 2.4%. With 11% of the world’s arable land, 4% of freshwater resources, but 17.84% of the world’s population, India’s main challenge will continue to be ensuring food security for 1.6 billion people by 2047.
Note: this is an article republished from “The Wire” through a cooperation agreement between both parties for the dissemination of journalistic content. original link.
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