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G33 to reopen talks on subsidies at WTO

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JOHANNESBURG, 21 October 2013 (IRIN) - The combined effects of the
global economic slowdown and increasing climatic shocks are threatening
food security in developing countries, prompting many to re-open World
Trade Organization (WTO) discussions on limits to support for farmers.

A group of developing countries - known as G33 - is asking to exceed
their agreed domestic support limits when they buy, stock and supply
cereals and other food to boost food security among the poor; they want
these changes to be exempt from any legal challenge.

Essentially, these countries want the freedom to buy grains at set
prices from producers and to use that grain to build stockpiles for
distribution. The WTO rules do not prescribe limits on the amount of
food that can be bought at market prices for food stocks, and it does
not limit the amount of food that can be provided as domestic food aid
at subsidized prices. The WTO only disciplines buying cereals at
administered prices.

The proposal will be discussed at the WTO Ministerial Conference in
Bali, Indonesia, in December.

Developed countries and some developing countries are concerned that
the G33 proposal - which is backed by India, China and Indonesia -
could affect food security in neighbouring countries. They fear these
measures could lead to surpluses in stocks, which the G33 members might
dump in the global market, disrupting global prices.

Ashok Gulati, chairman of India's Commission for Agriculture Cost and
Prices (CACP), reckons India wants more leeway to provide support for
its farmers and consumers because the government is launching a massive
subsidized food scheme through a public distribution system that will
reach two-thirds of its population - nearly 800 million people. He told
IRIN that a situation where India would be in a position to dump excess
stocks could arise "once in 10 years." He added, "the larger distortion
will be domestic," referring to disruptions to local markets.

A representative from one of the G33 countries at the WTO, who did not
want to be named, said not all the members of the group were supportive
of the proposal. "India is already the largest exporter of rice in the
world... Small exporters will lose their competitiveness because of
Indian subsidies... Rice prices are already going down, and with
further subsidies it can lead to a price crash," the representative

The delegate estimated that support for rice production in India - both
in the form of agricultural inputs and procurement - ran into billions
of dollars. Even more support could "ruin" agriculture sustainability
and "create food insecurity instead of food security" in the region.

"Although agricultural markets have evolved dramatically since 2007,
global trade rules have not"
Gulati has publicly come out against the government's plan to stockpile
staple grains because of the effect it would have on prices in the
local markets, according to interviews with the Indian daily the
Economic Times
_food-subsidy-food-grain-production-ashok-gulati> and news agency DNA
ltural-costs-and-prices> .

He maintains that dispensing subsidized food will not address
malnutrition, a significant problem in India, where almost half the
population of children are malnourished. Gulati believes this problem
can only be addressed by comprehensively tackling the various
dimensions of food insecurity, such as by increasing access to clean
water and improving the status of women.

But a new paper , produced
jointly by the Geneva-based International Centre for Trade and
Sustainable Development (ICTSD) and the Food and Agriculture
Organization (FAO), takes a sympathetic view of positions on both
sides, and uses the proposal to flag the need to reform global
agricultural trade rules. The paper contends there has been minimal
reform to agricultural trade rules since the Uruguay Round of
multilateral negotiations that led to the formation of the WTO two
decades ago.

"The G33 proposal can more broadly be seen as symptomatic of the
challenges many countries face in designing policies to achieve food
security goals in the new price environment," the paper notes.

"Although agricultural markets have evolved dramatically since 2007,
global trade rules have not," it adds.

To subsidize or not

Agricultural subsidies have been a contentious issue for years. The WTO
has placed ceilings on how much the US and the European Union (EU) can
spend on agricultural subsidies that distort trade, but these are still
rather high, food rights groups say.

A drought in the US in 2012 and fluctuating food prices have led
policy-makers there and in the EU to rethink protection and support for
their farmers, the International Food Policy Research Institute (IFPRI)
pointed out .

The US's agriculture policy is governed by the Farm Bill, which is
updated every four years, but the 2008 legislation was extended to
September 2013, when the two parties - the Democrats and the
Republicans - were unable to come to an agreement on subsidized food
for the country's poor. The new proposed bill recommends an expanded
insurance programme with new crop insurance subsidies, which would see
farmers receive money when income from certain crops falls below a
targeted level. It also sets higher target prices for crops that
trigger payments when revenues fall for several consecutive years. The
bill is likely to come up for negotiations in the coming weeks.

The EU has largely done away with export subsidies that support the
disposal of surplus production abroad, but the EU Common Agriculture
Policy still ensures high levels of direct support to farmers and
protects EU markets. The EU has substantially reformed farm support
over the years to reduce its impacts on trade and production, but some
still question whether the support provided continues to give European
producers an advantage over competitors elsewhere.

On the other hand, the economic slowdown and its impact on local
currencies have forced developing countries like Zambia to remove
ay-to-go> for farmers and millers because the expenditure is perceived
as draining the country's limited resources.

More imbalances?

If richer nations are strengthening support to their farmers while the
poorer countries cut back, could global imbalances grow?

Jamie Morrison, a senior economist with FAO and a co-author of the
ICTSD/FAO paper, says that, generally, when considering support to
farmers in times of disasters, countries should take into account the
kind of support they have to fall back on. In rich countries, farmers
have access to insurance and other safety nets, which might not be the
case in developing countries.

He says rich countries use public funding to "underwrite potential
losses [for farmers] which private sector insurance institutions may be
less willing to cover. This type of support is considered to be less
distortive of markets and trade."

But developing countries tend to intervene directly in the market to
stabilize prices for their producers while providing their consumers
"with some level of protection against high food prices", Morrison
said. This generally leads to buying grains at prices above the market
value and managing cross-border trade. This support not only drains the
country's coffers but "is considered to be distortive of markets and

Often these subsidies, whether in the form of cheaper agricultural
inputs or higher prices for produce, do not get to the intended poorest
farmers, and they are often driven by political opportunism - appeasing
the majority of the people in developing countries who depend on
agriculture for income and food.

"...for many countries, direct support for farmers 'may be essential in
facilitating agricultural transformation' and the 'only practical
option available given weaknesses' in other public institutions that
could have supported production"
CACP's Gulati, who formerly headed IFPRI's Asia office, said,
"Subsidies on fertilizer, power and irrigation are not targeted.
Subsidies have risen much faster than public investments in agriculture
[in India]. The marginal return on subsidies is less than one-fourth of
that from investments. Yet subsidies multiply due to higher political
returns. So India wants more leverage on subsidies."

Yet Morrison adds that, for many countries, direct support for farmers
"may be essential in facilitating agricultural transformation" and the
"only practical option available given weaknesses" in other public
institutions that could have supported production. "Greater use of a
system more reliant on market-based instruments may make a more
efficient use of resources, but may be impractical at the current

Jonathan Hepburn, agriculture programme manager with ICTSD says, "WTO
rules need to take into account the reality that countries are in
different situations, and that some have fewer resources at their
disposal to achieve public policy objectives. "


In the recent past, negotiating groups at the WTO have sought
preferential treatment. The least developed countries (LDCs), for
instance, are negotiating to enjoy some flexibility in their
implementation of import tariffs on agricultural products. However,
even the LDCs face limits on the amounts and kinds of subsidies they
provide - although many lack the resources to provide the amount of
farm support that would be capped by WTO rules, points out ICTSD's

Part of the problem in creating new rules on trade, Hepburn said, has
"been striking a balance between the rights and responsibilities of
different groups of countries - especially as the global economic
landscape has evolved dramatically over the last decade or so."

In December, according to the WTO
20> , countries might decide on a "temporary "waiver" (a formal legal
exemption allowing some member states to exceed their limits), a
non-binding political statement by the conference's chairperson or some
option in between. Flexibility along these lines has sometimes been
called a "peace clause" or "due restraint", because members would avoid
bringing legal disputes against developing countries in these


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[This report does not necessarily reflect the views of the United
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