WTO Agreement on Agriculture

After over 7 years of negotiations, the Uruguay Round multilateral trade negotiations were concluded on December 15, 1993 and were formally ratified in April 1994 at Marrakesh, Morocco. The WTO Agreement on Agriculture was one of the many agreements which were negotiated during the Uruguay Round.

The implementation of the Agreement on Agriculture started with effect from 1.1.1995. As per the provisions of the Agreement, developed countries would complete their reduction commitments within 6 years, i.e., by the year 2000, whereas the commitments of the developing countries would be completed within 10 years, i.e., by the year 2004. The least developed countries are not required to make any reductions.

The products which are included within the purview of this agreement are what are normally considered as part of agriculture except that it excludes fishery and forestry products as well as rubber, jute, sisal, abaca and coir.

Salient Features

The WTO Agreement on Agriculture contains provisions in 3 broad areas of
agriculture and trade policy:
1> market access
2> domestic support
3> export subsidies

1> Market Access

This includes tariffication, tariff reduction and access opportunities. Tariffication means that all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and converted into an equivalent tariff. Ordinary tariffs including those resulting from their tariffication are to be reduced by an average of 36% with minimum rate of reduction of 15% for each tariff item over a 6 year period. Developing countries are required to reduce tariffs by 24% in 10 years. Developing countries, as were maintaining Quantitative Restrictions due to balance of payment problems, were allowed to offer ceiling bindings instead of tariffication.

Special safeguard provision allows the imposition of additional duties when there are either import surges above a particular level or particularly low import prices as compared to 1986-88 levels. It has also been stipulated that minimum access, equal to 3% of domestic consumption in 1986-88, will have to be established for the year 1995 rising to 5% at the end of the implementation period.

2> Domestic Support

For domestic support policies, subject to reduction commitments, the total support given in 1986-88, measured by the Total Aggregate Measure of Support (total AMS), should be reduced by 20% in developed countries (13.3% in developing countries). Reduction commitments refer to total levels of support and not to individual commodities. Policies which amount to domestic support both under the product specific and non-product specific categories at less than 5% of the value of production for developed countries and less than 10% for developing countries are also excluded from any reduction commitments. Policies which have no or at most minimal trade distorting effects on production are excluded from any reduction commitments (‘Green Box’-Annex 2 of the Agreement on Agriculture). The list of exempted green box policies includes such policies which provide services or benefits to agriculture or the rural community, public stock-holding for food security purposes, domestic food aid and certain de-coupled payments to producers, including direct payments to production limiting programmes, provided certain conditions are met.

Special and Differential Treatment provisions are also available for developing country members. These include purchases for and sales from food security stocks at administered prices provided that the subsidy to producers is included in calculation of AMS. Developing countries are permitted untargeted subsidised food distribution to meet requirements of the urban and rural poor. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input subsidies generally available to low income and resource poor farmers in these countries.

3> Export Subsidies

The Agreement contains provisions regarding members’ commitment to reduce Export Subsidies. Developed countries are required to reduce their export subsidy expenditure by 36% and volume by 21% in 6 years, in equal instalments (from 1986 –1990 levels). For developing countries, the percentage cuts are 24% and 14% respectively in equal annual instalments over 10 years. The Agreement also specifies that for products not subject to export subsidy reduction commitments, no such subsidies can be granted in the future.

India's commitments

1> Market Access

As India was maintaining Quantitative Restrictions due to balance ofpayments reasons (which is a GATT consistent measure), it did not have toundertake any commitments in regard to market access. The only commitment Indiahas undertaken is to bind its primary agricultural products at 100%; processed foodsat 150% and edible oils at 300%. Of course, for some agricultural products likeskimmed milk powder, maize, rice, wheat, millets etc. which had been bound at zeroor at low bound rates, negotiations under Article XXVIII of GATT were successfullycompleted in December, 1999, and the bound rates have been raised substantially

2> Domestic Support

India does not provide any product specific support other than market price support. During the reference period (1986-88), India had market price support programmes for 22 products, out of which 19 are included in our list of commitments filed under GATT. The products are - rice, wheat, bajra, jowar, maize, barley, gram, groundnut, rapeseed, toria, cotton, Soyabean (yellow), Soyabean (black), urad, moong, tur, tobacco, jute and sugarcane. The total product specific AMS was (-) Rs.24,442 crores during the base period. The negative figure arises from the fact that during the base period, except for tobacco and sugarcane, international prices of all products was higher than domestic prices, and the product specific AMS is to be calculated by subtracting the domestic price from the international price and then multiplying the resultant figure by the quantity of production. Non-product specific subsidy is calculated by taking into account subsidies given for fertilizers, water, seeds, credit and electricity. During the reference period, the total non-product specific AMS was Rs.4581 crores. Taking both product specific and non-product specific AMS into account, the total AMS was (-) Rs.19,869 crores i.e. about (-) 18% of the value of total agricultural output. Since our total AMS is negative and that too by a huge magnitude, the question of our undertaking reduction commitments did not arise. As such, we have not undertaken any commitment in our schedule filed under GATT. The calculations for the marketing year 1995-96 show the product specific AMS figure as (-) 38.47% and non-product specific AMS as 7.52% of the total value of production. We can further deduct from these calculations the domestic support extended to low income and resource poor farmers provided under Article 6 of the Agreement on Agriculture. This still keeps our aggregate AMS below the de minimis level of 10%.

3> Export Subsidies

In India, exporters of agricultural commodities do not get any direct subsidy. The only subsidies available to them are in the form of (a) exemption of export profit from income tax under section 80-HHC of the Income Tax Act and this is also not one of the listed subsidies as the entire income from Agriculture is exempt from Income Tax per se. (b) subsidies on cost of freight on export shipments of certain products like fruits, vegetables and floricultural products. We have in fact indicated in our schedule of commitments that India reserves the right to take recourse to subsidies (such as, cash compensatory support) during the implementation period.

mandated negotiations

Article 20 of the Agreement on Agriculture (AoA) mandates that negotiations for continuing the reform process in agriculture will be initiated one year before the end of the implementation period. As the implementation period for developed countries culminated at the end of the year 2000, the negotiations on the Agreement on Agriculture have begun in January 2000. These negotiations are being conducted in special sessions of the WTO Committee on Agriculture (COA) at Geneva.

The following are the broad parameters for carrying out negotiations:
>> Experience of member countries in implementation of reduction commitments till date;
>> The effects of reduction commitments on World Trade in Agriculture;
>> Non-trade concerns, special and differential treatment to developing country members and the objective of establishing a fair and market oriented agricultural trading system; and
>> Identifying further commitments necessary to achieve the long-term objectives of the Agreement.

During extensive deliberations in the WTO Committee on Agriculture and in the General Council, member countries had agreed to broadly adhere to the mandate of Article 20 of the Agreement. In pursuance of the same, in the first phase of the negotiations, members have submitted 47 negotiating proposals, which were discussed in Seven Special Sessions of the CoA. With the approval of the Cabinet Committee on WTO Matters, India also submitted its negotiating proposals to the WTO on 15th January 2001, in the areas of market access, domestic support, export competition and food security. These proposals were drawn up and drafted based on the inputs received from wide ranging consultations with various stakeholders and keeping in view India’s objectives in the negotiations, which are to protect its food and livelihood security concerns and to protect all domestic policy measures taken for poverty alleviation, rural development and rural employment as also to create opportunities for expansion of agricultural exports by securing meaningful market access in developed countries. India also co-sponsored two papers, one on "Market Access" along with 11 other developing countries and another on "Export Credits for Agricultural Products" along with 9 other countries/group of countries.

The Prospects

According to the joint document, the WTO provisions were supposed to have the following positive impacts on the world trade:

(i) By 2005 there will be an addition of $745 billion in the world merchandise trade.
(ii) The GATT Secretariat provided a full break-up of the above-projected trade increase in the following way:
(a) The clothing sector to have a share of 60 per cent.
(b) The agricultural, forestry and fisheries products to have a share of 20 per cent.
(c) The processed food, beverages and drinks to have a share of 19 per cent

Survey - The NCAER (National Council for Applied Economic Research)

As per The NCAER (National Council for Applied Economic Research) survey of the WTO on the Indian economy is cited as the best document in this area
As per the survey
(a) The exports of agricultural products will be boosted by the WTO accepted regime.
(b) Only the foodgrains trade that too of wheat and rice were projected to be around $270 billion.
(c) The survey also pointed out that almsot 80-90 per cent of the increased supply of foodgrains to the world is going to originate from only two countries China and India as they are having the scope for increasing production.
(d) But the survey painted a very wretched picture about the preparedness of Indian agriculture sector to exploit the opportunities. It concluded China to be far better than India is this matter.
(e) It suggested almost every form of preparedness for the agriculture sector (at a glance we may have been on the Second Green Revolution in India­ basically the revolution is modelled on the findings and suggestions of the survey).
(f) Lastly, the survey ended at a high note of caution and concern that if India fails in its preparations to make agriculture come out as a winner in the WTO regime the economy will emerge as the biggest importer of agricultural products. At the same time the cheaper agri-imports might devastate Indian agricultural structure and the import-dependence may ruin the prospects of a better life for millions of poor Indians.
(g) Even iflndia does not want to tap the opportunities of the globalising world it has to gear up in the agriculture sector since the world market will hardly be able to fulfil the agri-goods demands of India by 2025. It means, it is only India which can meet its own agri-goods demand in the future.

The Challenges

If the WTO brings high prospects for Indian agriculture, it also brings in some hard-boiled challenges in front of it. These could be seen as individual challenges of the similar economies as well as joint challenges of such economies. The first category of challenges pertains to the area of relavent preparations, investment and restructuring of agriculture. And the second category of challenges are nothing less than a revision in the very agricultural provisions of the WTO itself (around which today revolves the success and faliure of the organisation itself). We may take a look at the challenges before the Indian agriculture:

Selfsufficiency of Food

Due to inflow of cheaper foodgrains from the world it would not remain economically viable in India to produce them and farmers might incline in favour of the profitable agri­ products. This will make India heavily dependent upon the world market for its food supplies, marring its achievement of food self-sufficiency. This will have serious political and ethical outcomes for ln dia

Price Stability

Dependence on the world market for the supply of agricultural products and specially for foodgrains will never be safe for India. As the international market for the products is highly speculative and full of variations (due to natural factors) the price stability will be always in danger-fluctuations hamper the producers and consumers of agri-goods in India. It would be very tough to fight dumping of surplus agri­ goods from other countries

Cropping Pattern

The cropping pattern of agriculture might take a very imbalanced shape, which will be highly detrimental to the ecology at large68 as the farmers will always be in favour of going for the crops and commodities which have comparative price advantage

Weaker Sections

The benefits of globalisation may not be neutral to areas, crops and the people. There will never prevail a certainty as to which area/region or crops or the people are going to benefit from globalisation in which year. At the same time globalisation is a process where profits can be made, but it is a market­ based concept. Those who are unable to produce due to lack of capital, investment and entrepreneurship will have no gains from it. They will be net consumers or buyers. Since India has a vast population of the weaker sections (as other third world countries have) this population will neither be able to increase its income nor be able to purchase the agri-goods having no price stability.
It means that the weaker sections of India might miss this chance of growth and development. We need to make the benefits of globalisation reach these people, too. This could be done by a timely and society-orientied public policy which is a big challenge

WTO Commitments

There are certain time-bound obligatory commitments of India towards the provisions of the WTO in the area of agriculture, which are highly detrimental to the people and the economy. We may see this challenge from two angles-
(a) According to the agricultural provmons, the total subsidies forwarded by the government to the sector must not cross 10 per cent of the total agricultural outputs. At the same time, exemptions to farmers are to be withdrawn-hampering the public distribution system badly. India's subsidies are still far below this limit, but commitments pose a threat to the sovereign decision making.
(b) The subsidies (with different names) to agriculture, which are forwarded by the developed countries are highly detrimental to Indian agriculture and they are very high, too.

Aggregate Measure of Support (AMS)

The subsidies provided by the government to the agricultural sector (i.e., domestic support) is termed by the WTO as Aggregate Measure of Support (AMS)

The AMS means annual level of support (subsidies) expressed in monetary terms, provided for an agricultural product in favour of the producers (product specific) of the basic agricultural product and non-product specific support provided in favour of agricultural producers in general.

As per the WTO provision, AMS is a trade distorting subsidy. Since it distorts trade by directly influencing production and price in an economy, the AMS is categorized as a ‘reducible’, ‘non permissible’ or ‘non-exempted’ subsidy.

The Aggregate Measurement of Support consists of two parts—product-specific subsidies and non-product specific subsidies. Product-specific subsidy refers to the total level of support provided for each individual agricultural commodity. For example wheat AMS is the subsidy given specifically to wheat. Non-product specific subsidy, on the other hand, refers to the total level of support given to the agricultural sector as a whole, i.e., subsidies on inputs such as fertilizers, electricity, irrigation, seeds, credit etc. Usually, these non product subsidies are given to all crops.

Subsidy provided through price support in the case of a specific product like wheat is measured by taking the difference between the price given to the domestic producers during procurement (by the government)and a specified fixed external reference price (world market price set by the WTO) of that product. Multiplying this gap by the quantity of production eligible to receive the administered price gives the specific subsidy for that product. If domestic prices are lower than the world reference price, then AMS turns out to be negative for that particular product.

As per the WTO norms, the AMS can be given up to 10 % of a country’s agricultural GDP in the case of developing countries. On the other hand, the limit is 5% for a developed economy. This limit is called de minimis level of support.

In WTO terminology, subsidies in agriculture and agricultural produce are identified by “Boxes”

Green Box

In simple terms , subsidies that do not distort trade fall in this box. According to WTO , green box subsidies should not distort trade , or at most cause minimal distortion.

These green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support.
Usually these subsidies are not directed at specific products and are not targeting subsidies and they may include direct income supports for farmers who are distressed due to crop loss or market breakdown.

Example - environmental and conservation programs, research funding, inspection programs, domestic food aid including food stamps, and disaster relief , farmer training programs, pest-disease control program

WTO Limit : There is no limit on governments for giving this kind of subsidies to their farmers.

Amber Box

The subsidies that distort the international trade by making products of a particular country cheaper as compared to same or similar product from another country is slotted under this box.

They distort trade balance because they encourage excessive production,therefore given country’s product becomes cheaper than others, in the international market.

Example :- Input subsidies such as subsidy on electricity , seeds , fertilizers , irrigation etc. Market support price (MSP) subsidies also fall under this box.

WTO limit -
For developed country - 5% of agriculture production in 1986-88
For developing country - 10% of agriculture production in 1986-88

Blue Box

These are basically Amber Box subsidies but they tend to limit the production. . Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit their production.

This "Box" is a hotly debated topic. Countries argue that Blue box subsidies are crucial for ushering in agricultural reforms. Currently only few countries like Norway , Iceland , Slovenia etc use this kind of subsidies.

Example - Subsidies that don’t increase with production. For example subsidies linked with acreage or number of animals.

WTO Limit - Same as Green Box - nothing.

S&D box

Other than the above-discussed highly controversial boxes of agricultural subsidies, the WTO provisions have defined yet another box, i.e., the Social and Development Box (S & D Box) allows the developing countries for some subsidies to the agriculture sector under certain conditions. These conditions revolve around human development issues such as poverty, minimum social welfare, health support, etc., specially for the segment of population living below the poverty line. Developing countries can forward such subsidies to the extent of less than 5 per cent of their total agricultural output

Export Subsidy

For export subsidy the WTO has provisions in two categories:
(i) Reduction in the total budgetary support on export subsidies, and
(ii) Reduction in the total quantity of exports covered by the subsidy.
Higher reduction commitment for the developed countries and lower for the developing countries are the provisions. But the developed nations forward such an inflated support to their agricultural exports that even after the committed reductions it will be highly price distorting against the agri-exports of the developing countries. It is therefore opposed by the developing countries

Sanitary and Phytosanitary Measures

The provisions of the WTO allow member countries to set their own health and safety standards provided they are justified on scientific grounds and do not result in arbitrary or unjustified barrier to trade. The provisions encourage use of international standards and also include certain special and differential treatment in favour of developing countries Though this provision has realised the scope of unjustified kind of health and phytosanitory measures on the developing countries, the developed nations have been beautifully able to do so by validating their health and related rules on scientific grounds. Such instances have distorted trade in favour of these countries and the developing countries' agriculture has been the real loser. The developing countries accuse such measures as the non-tarrif barriers used by the developed nations to block goods from the developing nations

Non-Agricultural Market Access -NAMA

The Non-Agricultural Market Access (NAMA) negotiations of the World Trade Organization are based on the Doha Declaration of 2001 that calls for a reduction or elimination in tariffs, particularly on exportable goods of interest to developing countries. NAMA covers manufacturing products, fuel and mining products, fish and fish products, and forestry products. These products are not covered by the Agreement on Agriculture or the negotiations on services. The WTO considers the NAMA negotiations important because NAMA products account for almost 90% of the world's merchandise exports

Swiss Formula

The Swiss Formula is a mathematical formula designed to cut and harmonize tariff rates in international trade. Several countries are pushing for its use in World Trade Organization trade negotiations. It was first introduced by the Swiss Delegation to the WTO during the current round of trade negotiations at the WTO, the Doha Development Round or more simply the Doha Round. Something similar was used in the Tokyo Round
The aim was to provide a mechanism where maximum tariffs could be agreed, and where existing low tariff countries would make a commitment to some further reduction.

The formula is of the form
Tnew = (A X Told) / (A + Told)

where
A is both the maximum tariff which is agreed to apply anywhere and a common coefficient to determine tariff reductions in each country;

Told is the existing tariff rate for a particular country; and

Tnew is the implied future tariff rate for that country.

So for example, a value A of 25% might be negotiated. If a very high tariff country has a rate Told of 6000% then its Tnew rate would be about 24.9%, almost the maximum of 25%. Somewhere with an existing tariff

Told of 64% would move to a Tnew rate of about 18%, rather lower than the maximum; one with a rate Told of 12% would move to a Tnew rate of about 8.1%, substantially lower than the maximum. A very low tariff country with a rate Told of 2.3% would move to a Tnew rate of about 2.1%.
Mathematically, the Swiss formula has these characteristics:
As Told tends to infinity, Tnew tends to A, the agreed maximum tariff
As Told tends to 0, Tnew tends to Told i.e. no change in tariffs as it is already low

National Food Security Act, 2013

The National Food Security Act, 2013 (NFSA 2013) converts into legal entitlements for existing food security programmes of the Government of India. It includes the Midday Meal Scheme, Integrated Child Development Services scheme and the Public Distribution System. Further, the NFSA 2013 recognizes maternity entitlements. The Midday Meal Scheme and the Integrated Child Development Services Scheme are universal in nature whereas the PDS will reach about two-thirds of the population (75% in rural areas and 50% in urban areas).
Under the provisions of the bill, beneficiaries of the Public Distribution System (or, PDS) are entitled to 5 kilograms (11 lb) per person per month of cereals at the following prices:
Rice at ₹3 (4.7¢ US) per kg
Wheat at ₹2 (3.1¢ US) per kg
Coarse grains (millet) at ₹1 (1.6¢ US) per kg.
Pregnant women, lactating mothers, and certain categories of children are eligible for daily free cereals.
The bill has been highly controversial. It was introduced into India's parliament on 22 December 2011, promulgated as a presidential ordinance on 5 July 2013, and enacted into law on 12 September 2013

Salient features

Coverage and entitlement under Targeted Public Distribution System (TPDS) : Up to 75% of the rural population and 50% of the urban population will be covered under TPDS, with uniform entitlement of 5 kg per person per month. However, since Antyodaya Anna Yojana (AAY) households constitute poorest of the poor, and are presently entitled to 35 kg per household per month, entitlement of existing AAY households will be protected at 35 kg per household per month.
State-wise coverage : Corresponding to the all India coverage of 75% and 50% in the rural and urban areas, State-wise coverage will be determined by the Central Government. Planning Commission has determined the State-wise coverage by using the NSS Household Consumption Survey data for 2011-12.
Subsidised prices under TPDS and their revision : Foodgrains under TPDS will be made available at subsidised prices of Rs. 3/2/1 per kg for rice, wheat and coarse grains for a period of three years from the date of commencement of the Act. Thereafter prices will be suitably linked to Minimum Support Price (MSP). In case, any State’s allocation under the Act is lower than their current allocation, it will be protected up to the level of average offtake under normal TPDS during last three years, at prices to be determined by the Central Government. Existing prices for APL households i.e. Rs. 6.10 per kg for wheat and Rs 8.30 per kg for rice has been determined as issue prices for the additional allocation to protect the average offtake during last three years.
Identification of Households : Within the coverage under TPDS determined for each State, the work of identification of eligible households is to be done by States/UTs.
Nutritional Support to women and children : Pregnant women and lactating mothers and children in the age group of 6 months to 14 years will be entitled to meals as per prescribed nutritional norms under Integrated Child Development Services (ICDS) and Mid-Day Meal (MDM) schemes. Higher nutritional norms have been prescribed for malnourished children up to 6 years of age.
Maternity Benefit : Pregnant women and lactating mothers will also be entitled to receive maternity benefit of not less than Rs. 6,000.
Women Empowerment : Eldest woman of the household of age 18 years or above to be the head of the household for the purpose of issuing of ration cards.
Grievance Redressal Mechanism : Grievance redressal mechanism at the District and State levels. States will have the flexibility to use the existing machinery or set up separate mechanism.
Cost of intra-State transportation & handling of foodgrains and FPS Dealers' margin : Central Government will provide assistance to States in meeting the expenditure incurred by them on transportation of foodgrains within the State, its handling and FPS dealers’ margin as per norms to be devised for this purpose.
Transparency and Accountability : Provisions have been made for disclosure of records relating to PDS, social audits and setting up of Vigilance Committees in order to ensure transparency and accountability.
Food Security Allowance : Provision for food security allowance to entitled beneficiaries in case of non-supply of entitled foodgrains or meals.
Penalty : Provision for penalty on public servant or authority, to be imposed by the State Food Commission, in case of failure to comply with the relief recommended by the District Grievance Redressal Officer

current agricultural scenario

The agriculture sector has remained the least reformed area in the reform era. There has been several socio-economic reasons behind it. In the meantime, the sector still plays a big role in the proper functioning of the economic system even if it contributes just around 14 per cent to the national income. As per the Economic Survey 2014-15, the outlook and challenges regarding the sector are as given below:
1. The inflation is not expected to rise significantly from the current levels as-
(i) The oil prices are expected to remain low in the coming months on account of weak global demand and increased supplies.
ii) Global commodity prices have generally been declining and are expected to remain weak in 2015 due to low demand and comfortable supply.
(iii) Factors like high rural wages, higher level of MSP, and rise in input cost have been instrumental for higher inflation in the last few years. At present, growth of all these have been slowed down considerably and this could result in keeping food inflation within limits.
2. Agriculture and food sector needs huge investment in research, education, extension, irrigation, fertilizers, and laboratories to test soil, water and commodities, warehousing, coldstorage.
3. Rationalisation of subsidies and better targeting of beneficiaries would generate part of the resources for public investment.
4. There are wide differences in the yields within states. Even the best of the states have much lower yield in different crops when compared to the best in the world. This provides ample opportunity to increase production by bridging the yield-gap to the extent feasible within the climatic zone.
5. The focus of public expenditure for agriculture so far has been on provision of subsidies (public expenditure in agriculture is only one-fourth of expenditure towards food and fertilizer subsidies) and it is time it shifted towards investments to boost productivity.
6. Recommendations of the Shanta Kumar Committee provide useful suggestions for the future road-map of food-policy. Every effort should be made to bring states on board for creating national common market for agricultural commodities