As talk increases about restarting the Doha Round of WTO trade policy negotiations, more analyses about subsidies in developing countries are being released. A recent analysis by DBT Associates, LLC describes the wide gap between commitments made by India, China, Brazil, Thailand and Turkey in the Uruguay Round Agreement on Agriculture (URAA) and actual program outlays.
When the URAA was negotiated in the early 1990s there was a great frustration that developed countries, including the U.S., were using various agricultural subsidies to capture export markets that would possibly be served by developing countries in a more market-driven environment. Developed countries and developing ones were assigned spending limits for trade-distorting domestic agricultural subsidies in relation to historical outlays to begin reducing them. The Doha Round was to make further outlay reductions. The focus was on reducing subsidies that existed in 1995 and not letting new ones be instituted. Subsidies for a crop that are less than 5 percent of the market value for developed countries and 10 percent for developing countries were considered de minimis (small) and ignored for subsidy calculation purposes.
What was not expected was that some major developing countries would sharply increase outlays as negotiations ground to a halt, while developed countries limited outlays to meet their WTO commitments to reduce subsidies impacting export markets. The DBT analysis looks at recent years for wheat, corn and rice. The subsidies impacts on markets are measured in a technical term called the Aggregate Measure of Support (AMS). India and Turkey were each assigned an AMS of zero because they did not use subsidies or they were less than 10.0 percent of market value for each of the three crops in the base years of 1986-88. China was also assigned a zero limit when it joined the WTO in 2001. Brazil was assigned an AMS of $0.912 billion and Thailand $0.634 billion.
DBT estimated the countries actual AMS for recent years. India, China and Turkey, which had per year AMS limits of $0.0 for the three crops, had estimated AMS per year, respectively, of $26.1-93.4 billion, $48.4-109.8 billion and $7.0 billion. Brazil, with a limit of $0.912 billion per year, had an estimate for recent years of $1.4 billion. That does not include Brazil’s big field crops of soybeans and sugar. Thailand had an estimated AMS of $1.9-10.6 billion per compared to a limit of $0.634 billion. The numbers for India and China are truly incredible. These are not cases of accidental overruns, but deliberate management of programs without consideration for WTO commitments.
In looking at a few details on each country’s programs, India is a good one to start with because they run relatively simple programs. The central government sets a minimum support price (MSP) that encourages farmers to produce large crops and buys large quantities (about 30 percent of the crop in recent years) of wheat and rice to maintain those market prices. Corn is a relatively minor crop. The MSP for 2013/14 for wheat was $232 per MT, rice $332 per MT and corn $217 per MT. For comparison, support prices in the U.S. 2014 farm bill are $201 per MT for wheat, $308 per MT for rice and $146 per MT for corn. Much of what the government buys is sold to low-income people at subsidized prices. When excess supplies accumulate, they are sold at world market clearing prices. Last year wheat was sold with a subsidy estimated at $27-38 per MT. In 2013 India was the world’s largest rice exporter at 10 MT. Last year India tied up the WTO policy implementing process for six months to get assurance they could continue these programs.
India also subsidizes inputs. In the latest year India reported to the WTO, 2008/09, it spent $33 billion on subsidies, but only reported 20 percent of that in the most trade distorting category. Their de minimis limit is $23.5 billion. The DBT authors believe the entire amount should be in the most trade distorting category.
China’s policies are like India’s with higher support prices and additional programs, including direct payments to grain producers. Its market support prices in 2013/14 were $384 per MT for wheat, $438 per MT for rice and $361 per MT for corn. They mostly affect international markets by keeping out lower-priced commodities, although they do export small quantities of all three grains. The DBT authors cite the refusal to import U.S. corn in 2014 over concern about biotech corn MIR 162 as an example of keeping out lower-priced products. China also has input subsidies for fuel, fertilizer and other inputs that are included in the AMS.
Brazil also uses minimum guaranteed prices (MGP) as a foundation for its income support policies. It uses other programs to move products to grain deficit areas or to export and to support incomes at the MGP price level. The costs of the export subsidies for corn are included in the AMS estimate. It seems that most government programs have an export subsidy component.
The Thailand government operated a Paddy Pledging Scheme for rice under which it purchased rice from producers at a support price far above world market rates. That resulted in a loss of exports to countries like India and a huge accumulation of stocks. The new government replaced it with subsidize credit and direct payment. Then they brought back the pledging program. The new program is a smaller version of the old program and depending on how it operates will cause WTO AMS limit problem.
Turkey has high price supports, makes direct payments, subsidizes inputs, has a grain board which makes purchases from farmers and has subsidies for exports of wheat and flour. Turkey is one of the world’s largest exporters of wheat flour.
WTO rules have not prevented developing countries from following the bad habits of developed countries in having subsidies that distort trade. In light of this reality, the entire trade policy debate for agriculture needs to be rethought.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org/). Follow us: @TruthAboutTrade and @World_Farmers on Twitter | Truth About Trade & Technology on Facebook.