On November 11, 2024, the World Trade Organisation circulated a communication from the US, Argentina, Australia, Canada and Ukraine which alleges that India appears to be providing significant market price support to wheat and rice. The communication relates to marketing years (MY) 2021-22 and 2022-23. It points out that the support is substantially more than what India had notified earlier. The communication mentions that its sponsors would like further discussion on the issue in the WTO. At its core the entire MSP regime of India for wheat and rice has been challenged yet again.
This is not the first time that the US has circulated a communication on the issue. In May 2018 too, a similar paper was issued by the Committee on Agriculture of WTO, on the request of US.
On June 6, 2018, the WTO circulated a compilation of questions posed by the US regarding the domestic support to wheat and rice through MSP regime.
On January 23, 2022, 27 members of US Congress wrote to US Trade Representative and Secretary Agriculture in the Biden Administration to hold India accountable regarding MSP support to wheat and rice production.
On July 1, 2022, four members of US Congress wrote to President Biden that India’s MSP regime is dangerously distorting global trade, and it adversely impacts US farmers.
Why does India’s support look so high?
Primarily there are three reasons why India’s rice and wheat support is estimated to be higher than reality, in any typical year:
- WTO’s methodology of estimating crop price-support utilises a comparison of prices in year 2022/23 with those in years 1986-88: The level of price support that a country provides for farmers of a crop is estimated by the WTO as the difference between the administered/ruling price of that crop with an external reference price. If within a year, the former (on average) is greater than the latter, then the crop is assessed to have been ‘supported’ to that extent. But if one compared the prices of today with those 36 years back, then inevitably the former is going to be higher. This is how the WTO estimates price support for crops, essentially without accounting for inflation.
- Value of support is estimated based on total production and not the quantity that was actually procured: From point 1 above, the “level of price support” per tonne of grain is estimated, which is then multiplied with the crop size to get the value of support or Aggregate Measure of support (AMS) for a crop. The disconnect in methodology of US etc is that instead of accounting for just the procured quantity, they argue that the entire crop of wheat and rice benefits from MSP. The resultant support therefore looks much higher.
- Currency for estimation of support: The US uses INR to determine support by taking the USD-INR exchange rate of 1986-89. It does not consider the depreciation in INR. As a result, Indian support looks substantially exaggerated.
There are about 145 million farmers in the country and about 86 percent of these have landholdings below two hectares. As per the recently released NAFIS survey report, these farmers on average earn about Rs.12,698 per month, i.e., about Rs. 1,52,376 per year or about US$ 2059 per year (at 2022 exchange rate). With an average household size of 4.2 persons, this implies that average income of a farm household is less than US$500 in a year. Most Indian farmers are resource-poor.
Indian agriculture is increasingly threatened by climate change which includes scorching summer, erratic monsoon rains, shorter and warmer winter and pest attacks. There is a consensus among policy makers that rice production in several water stressed regions needs to be discouraged. Going forward, we can expect policies to support this.
While the US and these exporting countries see India as distorting global trade, India has been struggling to ensure its own food security. Due to lower crop, the export of wheat and rice has remained restricted for over two years.
India does not pose any real challenge to major wheat exporting countries. India has a share of just 2.4% of global exports of agricultural products of about $1.3 trillion. With just about 11% of global arable land and 4% of freshwater resources but 17.84 % of world population, India’s principal challenge will continue to be to ensure food security for 1.6 billion people (by 2047).
Siraj Hussain is a former Union agriculture secretary. Shweta Saini, an economist, is CEO of Arcus Policy Research.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been updated and republished here. To subscribe to The India Cable, click here.
