Agricultural producer support in India in 1995-2013 and the rules of the WTO IAMO Forum 2014: The rise of the emerging economies : Towards functioning agricultural markets and trade relations? Leibniz Institute of Agricultural Development in Transition Economies (IAMO) Agricultural and Applied Economics Association (AAEA) International Agricultural Trade Research Consortium (IATRC) 25-27 June 2014, Halle (Saale), Germany Lars.Brink@hotmail.com
2 Domestic support in the WTO Support from domestic measures only General services, payments, subsidies, administered prices Not border measures: tariffs, export subsidies, etc. Two kinds of domestic support Not limited: green box, blue box, Article 6.2 Limited: everything else Measure support in particular ways AMSs Aggregate Measurements of Support Price gap support Payments, subsidies
3 India s domestic support 1986-88 submission AGST Establishes data and methods for later notifications Price gaps in 19 product-specific AMSs Administered prices INR/tonne Reference prices INR/tonne Multiply by eligible production : total production Generates WTO market price support All product-specific AMSs negative in 1986-88 Latest notification for 2003 Need for up to date information on policies and support
4 India s 1995-2003 notifications questioned Many questions in WTO CoAg Major issue called notified in USD Even more major issue is: Which reference price? Fixed 1986-88? Or continually raised in proportion to currency depreciation? Effect of India s new method Raises reference price in INR/tonne, not in USD/tonne Result: price gap remains negative All product-specific AMSs negative in 1995-2003
* Effectively less than 32 AMSs because no procurement of sugarcane and negative gaps in some scenarios. 5 32 * PS AMS calculations for 1995-2013 4 crops: rice, wheat, cotton, sugarcane 4 price gap scenarios I. Fixed external reference price FERP in INR/tonne II. Deflate price gap by inflation III. Increase reference price (no longer fixed) by inflation IV. Increase reference price (no longer fixed) by currency depreciation 2 eligible production scenarios Total production Government procurement
-6.000 6 Price gap: rice INR/tonne 16.000 14.000 I: using FERP 12.000 10.000 8.000 6.000 4.000 2.000 0-2.000-4.000
-6.000 7 Price gap: rice INR/tonne 16.000 I: using FERP 14.000 12.000 II: Deflated gap using FERP 10.000 8.000 6.000 4.000 2.000 0-2.000-4.000
-6.000 8 Price gap: rice INR/tonne I: using FERP II: Deflated gap using FERP 16.000 14.000 12.000 III: Using inflation adjusted ERP 10.000 8.000 6.000 4.000 2.000 0-2.000-4.000
-6.000 9 Price gap: rice INR/tonne I: using FERP II: Deflated gap using FERP III: Using inflation adjusted ERP IV: Using INR/USD adjusted ERP 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0-2.000-4.000
Results: Scenarios I and II I. Fixed external reference price Production AMS above 10 % of VOP for rice, wheat, cotton (some years), sugarcane» In recent years: hugely above Procurement: AMS above 10 % of VOP in recent years for rice, wheat II. Deflated price gap Production AMS above 10 % of VOP for rice, wheat, sugarcane Procurement AMS never above 10 % of VOP 10
Results: Scenarios III and IV III. Inflation-adjusted ERP Production Price gap negative for rice, wheat, cotton, so AMS = zero But sugarcane AMS above 10 % of VOP Procurement Price gap negative for rice, wheat, cotton, so AMS = zero No procurement of sugarcane IV. Currency-depreciation-adjusted ERP Production Price gap not negative for rice in later years Significantly: rice AMS above 10 % of VOP in 2009-13 Procurement Rice AMS below 10 % of VOP in later years 11
AMS: rice INR billion 1.700 1.600 I: FERP; production 1.500 1.400 1.300 I: FERP; procurement 1.200 1.100 1.000 900 10% of VOP 800 700 600 500 400 300 200 100-1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 12
AMS: rice INR billion 1.700 1.600 II: Deflated FERP gap; production 1.500 1.400 1.300 II: Deflated FERP gap; procurement 1.200 1.100 1.000 900 10% of VOP 800 700 600 500 400 300 200 100-1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 13
AMS: rice INR billion 1.700 1.600 IV: INR/USD adjusted ERP; production 1.500 1.400 1.300 IV: INR/USD adjusted ERP; procurement 1.200 1.100 1.000 900 10% of VOP 800 700 600 500 400 300 200 100-1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14
AMS: rice INR billion 1.700 I: FERP; production I: FERP; procurement II: Deflated FERP gap; production II: Deflated FERP gap; procurement IV: INR/USD adjusted ERP; production IV: INR/USD adjusted ERP; procurement 10% of VOP 1.600 1.500 1.400 1.300 1.200 1.100 1.000 900 800 700 600 500 400 300 200 100-1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 15
Years in which an AMS exceeds its de minimis threshold Price gap scenario I Fixed ERP (FERP) II Deflated gap using FERP III Inflation-adjusted ERP IV INR/USD-adjusted ERP Rice AMS Production 1995-2013 1995-2013 - 2009-2013 Procurement 2000-2013 - - - Wheat AMS Production 1996-2013 1996-2013 - - Procurement 2001-2002, 2008-2013 - - - Cotton AMS Production 2008-2009, 2011-2013? - - - Procurement - - - - Sugarcane AMS Production 1995-2013 1995-2013 1995-2013 2002-2013 Procurement Not applicable Not applicable Not applicable Not applicable Non-productspecific AMS 2008 16
17 Implications for compliance Deviating from 1986-88 data and methodology matters greatly for de minimis compliance But even deviating by increasing reference prices is not enough for de minimis compliance in 2009-13 for rice Appearance of compliance requires also switching from production to procurement
18 Points for discussion WTO measurement of support vs. economic support Legal interpretation of Agreement matters Taking into account the 1986-88 method means what? Fixed external reference price means what? Is inflation adjustment allowed? Not in notifications But CoAg must give due consideration to excessive inflation How to give consideration to any excessive inflation?
Bottom line Administered prices are at root of India s problem Not level but use Past administered prices have been close to international prices Agreement effectively penalizes use of administered prices AAP & eligible production are set by policy; FERP is constant Must calculate price gap support in AMS If no administered price, no price gap support in AMS Different from economic measurements of support Buy or procure at market prices No need to calculate price gap support Even if domestic market prices exceed international prices 19
Thank you! Lars.Brink@hotmail.com With grateful acknowledgement of financial support from the Global Issues Initiative of the Institute for Society, Culture and Environment, Virginia Tech References Brink, L. 2014. Support to agriculture in India in 1995-2013 and the rules of the WTO. Working paper 14-01, International Agricultural Trade Research Consortium (IATRC). http://ageconsearch.umn.edu/bitstream/166343/2/wp%2014-01%20brink.pdf Brink, L. 2014 (forthcoming). Evolution of trade-distorting domestic support. In Tackling Agriculture in the Post-Bali Context. Geneva: International Centre for Trade and Sustainable Development (ICTSD), E-book. Brink, L. 2011. The WTO Disciplines on domestic support. In WTO Disciplines on Agricultural Support: Seeking a Fair Basis for Trade, ed. D. Orden, D. Blandford and T. Josling. Cambridge: Cambridge University Press. Brink, L. 2009. WTO constraints on domestic support in agriculture: past and future. Canadian Journal of Agricultural Economics 57(1): 1-21. DOI: 10.1111/j.1744-7976.2008.01135.x