The Story behind Farm Subsidies
There is significant pressure on developing countries to withdraw their farm subsidies. Major developing economies such as India, China & Indonesia have strongly opposed the US & EU and warned them against withdrawal of farm subsidies, as they have billions of mouths to feed. This blog examines the issue and the points of contention!
The Contention
India's Food Security Act requires its government to feed the poor. India has a well established PDS (ration shop) system through which it distributes basic food grains and kerosene to its poor. The government buys food from farmers at a pre-determined price called MSP (Minimum Support Price), stocks them in its godowns and distributes it through the 5 lac ration shops across the country. For example, the MSP for rice may be Rs.32/kg, but at PDS it is sold to the poor at Rs.5/kg. The difference of Rs.27/kg is borne by the government, which works out to an annual expense of $20bn. According to the west, the difference between the MSP (or the administered price) & the market price should not exceed 10% of the market price. In India, today, this difference is not more than 10% but WTO requires that the administered price be based on 1986 constant prices - which has been outright declined by India!
Trade Facts
India's total agri output is $260bn, of which it exports products worth only $21bn (approx 8% of its production). Cereals and animal products account for 70% of India's exports - specifically, basmati rice & buffalo meat forms over 50% of this pie. In contrast, the total agri output of US is $374bn, of which it exports goods worth $133bn (approx 36% of its production). India's agri subsidies works out to $15bn, while the US subsidies bill is $20bn. India and US have 166mn and 0.75mn people working in its farms, based on which the per capita subsidy (i.e subsidy per farmer) works out to $90 and $26,666 respectively. If India were to comply to WTO's demands, its per capita subsidy must be reduced 93% from the present $90 to $6!!
Is trade distortion for real?
In recent years, excessive agri subsidies by US ($20bn pa), EU($39bn pa) and other developed countries have resulted in huge surplus of agri products globally, causing a fall in the price of most agri commodities. Simple economics tells us that a fall in price can only be compensated by a rise in volume - so the west seeks to increase its exports to counter the fall in its agri export income, for which it has to ensure the rest of the (populous) countries lower their production.
As evident from the data, a (self-sufficient) country such as India which produces and consumes 92% of its food production has very little to offer to (or gain from) global food trade. Whereas a country such as US, which produces more than what it needs (there by increasing its carbon footprint as well), has an excess of 36% of its produce (for exports) stands a very good chance to gain from global food trade - which explains the drumming up in WTO!!
The Contention
India's Food Security Act requires its government to feed the poor. India has a well established PDS (ration shop) system through which it distributes basic food grains and kerosene to its poor. The government buys food from farmers at a pre-determined price called MSP (Minimum Support Price), stocks them in its godowns and distributes it through the 5 lac ration shops across the country. For example, the MSP for rice may be Rs.32/kg, but at PDS it is sold to the poor at Rs.5/kg. The difference of Rs.27/kg is borne by the government, which works out to an annual expense of $20bn. According to the west, the difference between the MSP (or the administered price) & the market price should not exceed 10% of the market price. In India, today, this difference is not more than 10% but WTO requires that the administered price be based on 1986 constant prices - which has been outright declined by India!
Trade Facts
India's total agri output is $260bn, of which it exports products worth only $21bn (approx 8% of its production). Cereals and animal products account for 70% of India's exports - specifically, basmati rice & buffalo meat forms over 50% of this pie. In contrast, the total agri output of US is $374bn, of which it exports goods worth $133bn (approx 36% of its production). India's agri subsidies works out to $15bn, while the US subsidies bill is $20bn. India and US have 166mn and 0.75mn people working in its farms, based on which the per capita subsidy (i.e subsidy per farmer) works out to $90 and $26,666 respectively. If India were to comply to WTO's demands, its per capita subsidy must be reduced 93% from the present $90 to $6!!
Is trade distortion for real?
In recent years, excessive agri subsidies by US ($20bn pa), EU($39bn pa) and other developed countries have resulted in huge surplus of agri products globally, causing a fall in the price of most agri commodities. Simple economics tells us that a fall in price can only be compensated by a rise in volume - so the west seeks to increase its exports to counter the fall in its agri export income, for which it has to ensure the rest of the (populous) countries lower their production.
As evident from the data, a (self-sufficient) country such as India which produces and consumes 92% of its food production has very little to offer to (or gain from) global food trade. Whereas a country such as US, which produces more than what it needs (there by increasing its carbon footprint as well), has an excess of 36% of its produce (for exports) stands a very good chance to gain from global food trade - which explains the drumming up in WTO!!
nicely explained the basics and India stand, thanks
ReplyDeleteHalo,I'm Helena Julio from Ecuador,I want to talk good about Le_Meridian Funding Investors on this topic.Le_Meridian Funding Investors gives me financial support when all bank in my city turned down my request to grant me a loan of 500,000.00 USD, I tried all i could to get a loan from my banks here in Ecuador but they all turned me down because my credit was low but with god grace I came to know about Le_Meridian so I decided to give a try to apply for the loan. with God willing they grant me loan of 500,000.00 USD the loan request that my banks here in Ecuador has turned me down for, it was really awesome doing business with them and my business is going well now. Here is Le_Meridian Funding Investment Email/WhatsApp Contact if you wish to apply loan from them.Email:lfdsloans@lemeridianfds.com / lfdsloans@outlook.comWhatsApp Contact:+1-989-394-3740.
ReplyDelete