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LATEST NEWS UPDATES | Farm subsidies: the coming fight at the WTO

Farm subsidies: the coming fight at the WTO

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published Published on May 24, 2018   modified Modified on May 24, 2018
-Livemint.com

India needs to defend policies that make agriculture remunerative and stand by its poor at this stage of development

In an attempt to combat rural distress, the Union budget announced this year by finance minister Arun Jaitley promised a new deal to farmers—minimum support prices (MSP) that would be 150% of the cost of production.

The government is expected to announce the first set of support prices under the new policy in the coming weeks, just before the kharif sowing season begins. The second phase, to be rolled out in October, would ensure that MSP benefits the farmers of 23 notified crops. The details are being worked out by NITI Aayog.

However, the new MSP policy could pull India into a confrontation at the World Trade Organization (WTO). Higher MSPs will likely make Indian farm subsidies breach the limit that the WTO finds acceptable. The Narendra Modi government should roll up its sleeves to fight back, especially given the recent face-off between India and the US over farm subsidies.

After taking on China, US President Donald Trump seems to be shifting some of his attention to India. The US has announced that it will be dragging India to the WTO because it claims India has under-reported the market price support (MPS) for rice and wheat. According to the US, the MPS for wheat and rice, respectively, appears to be over 60% and 70% of the total value of production, against the permissible cut-off of 10%. India is planning to officially respond at the WTO’s committee on agriculture meeting in June.

India needs to question the foundation of the entire subsidy regime defined by the WTO. The relevant question is not how much support a government can provide to farmers to avoid distorting trade. It is how much it should provide to feed a country that is home to a fourth of the world’s hungry population.

Also, small farmers and poor consumers in developing countries are the most vulnerable to volatile price movements in commodity markets. The Union government needs to begin making its case by questioning the way WTO calculates subsidies, as well as the way the rich countries support their farmers. For example, for the purpose of calculating current subsidies, the WTO uses the average of 1986-88 global prices as the base. Therefore, the difference between the ongoing MSP and these reference prices looks too high.

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Livemint.com, 23 May, 2018, https://www.livemint.com/Opinion/PvLKSysU800Eq0so6rLoaL/Farm-subsidies-the-coming-fight-at-the-WTO.html


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