Info Service on WTO and Trade Issues (Nov13/06)
18 November 2013
Third World Network
Experts stress importance of public stockholding for food security
Published in SUNS #7697 dated 15 November 2013
Geneva, 14 Nov (Kanaga Raja) -- A group of eminent trade experts from
developing countries has highlighted the importance of public stockholding
for food security, and the need to correct some of the imbalances
in the present rules on agricultural subsidies in the World Trade
The views of these eminent experts are reflected in a report titled
"The WTO's Bali Ministerial and Food Security for Developing
Countries: Need for Equity and Justice in the Rules on Agricultural
Subsidies", drawn from discussions at two expert group meetings
organised by the Geneva-based South Centre.
The eminent experts included Rubens Ricupero (former Secretary-General
of UNCTAD), S. Narayanan (former Ambassador of India to the WTO),
Ali Mchumo (former Managing Director of the Common Fund for Commodities
and former Ambassador of Tanzania to the WTO), Li Enheng (Vice Chairman,
China Society for WTO Studies), Carlos Correa (Professor, University
of Buenos Aires), Deepak Nayyar (Vice Chair, Board of South Centre,
former Vice Chancellor of Delhi University and former Chief Economic
Advisor to Government of India), Yilmaz Akyuz (Chief Economist, South
Centre, former Director of UNCTAD's Globalisation and Development
Strategies Division) and Chakravarthi Raghavan (Editor Emeritus of
the South-North Development Monitor).
According to the report, released by the South Centre Thursday, an
important issue for the WTO's Bali Ministerial meeting relates to
one significant aspect of food security for developing countries,
brought up in a proposal by the Group of 33 (G-33) developing countries
within the framework of the Doha Round multilateral trade negotiations.
The report noted that under the WTO Agreement on Agriculture, public
stockholding for food security purposes is included as one of the
items under the Green Box, but with certain conditions. The Green
Box (described in Annex 2 of the Agreement on Agriculture) sets out
domestic support measures that are considered minimally or non-trade
distorting, and WTO Members are allowed to take recourse to these
measures without limitations. In fact, government spending under these
measures can be increased to any extent.
However, said the report, in the case of public stockholding, a significant
condition, causing enormous problems to developing countries, has
The South Centre report explained that one condition is that food
purchases by the government shall be made at current market prices
and sale from public stockholding shall be made at prices not lower
than current domestic market price. It is also stipulated in this
context that the difference between the procurement price and external
reference price should be accounted for in the calculation of Aggregate
Measurement of Support (AMS), or so-called "trade distorting
According to the report, this stipulation negates the objective of
including ‘public stockholding for Food Security purposes' in the
Green Box, since effectively the difference between procurement price
and the external reference price is treated as a subsidy to the farmer
and included in the AMS. This negation of the objectives of the Green
Box in respect of public stockholding is especially so because the
external reference price has been defined as the international price
prevalent on average in 1986-88.
Noting that food prices internationally, as well as domestically,
have increased very significantly since then, the report says: "Thus,
this stipulation limits the ability of developing countries to implement
schemes to assist their small farmers."
The main element of the G-33 proposal is that acquisition of stocks
of foodstuff by developing countries with the objective of supporting
low-income or resource-poor producers should not be included in the
calculation of AMS, the report underlined.
"The G33 proposal, if adopted, would thus enable developing countries
to formulate or implement such schemes to help their poor producers
or families without the present restraints placed by the WTO agriculture
rules. It would advance the cause of national food security, promotion
of small farmers' livelihoods as well as fulfilling the Millennium
Development Goals of reducing hunger and poverty."
The eminent experts thus consider this proposal "to be worthy
of support and of great importance in contributing to the success
of the WTO's 9th Ministerial Conference and to the reputation of the
WTO as an organisation that is concerned with development and poverty
Highlighting the importance of public stockholding programmes in developing
countries, the report stressed that the acquisition of food stocks
has always been an important instrument for development and was also
used by many developed countries during their development process.
According to the report, it remains an important policy tool for developing
countries for the following reasons:
(1) In the face of volatility of food stocks on the global market
today and fluctuations in global food prices, building national reserves
has been widely acknowledged to be a critical part of developing countries'
food security strategy. Today's global food market is structurally
different from the market when the Uruguay Round was completed. In
the 1990s and early 2000s, food on the global market was cheap and
stocks were plentiful. It is no longer so.
(2) Acquiring surpluses from some regions of the country and sending
these supplies to other regions of the country that are food deficit
has been and remains an important food security instrument for developing
(3) Many developing countries continue to struggle with widespread
rural poverty. At least 1.5 billion individuals depend on small-scale
farming for their livelihoods. This remains a major issue especially
when the share of the population engaged in agriculture continues
to be significant and the industrial or services sectors cannot provide
sufficient employment. For broad-based development to take place,
countries must ensure that the living standards and purchasing power
of the majority can be increased. Governments' programmes acquiring
foodstuffs at administered prices are therefore an important avenue
whereby resource poor farmers' incomes can be stabilised and even
(4) Article 11 of the International Covenant on Economic, Social and
Cultural Rights imposes on States three levels of obligations in the
realization of such right (to food): to respect existing access to
adequate food, to protect and to fulfil the right to food; they ‘must
facilitate it by proactively strengthening people's access to and
utilization of resources and means to ensure their livelihood, including
food security'. The adoption of the G-33 proposal will be instrumental
to the realization of the human right to food. Preserving the current
situation under the Agreement on Agriculture might, in fact, force
WTO members to violate their human rights obligations.
On the G-33 proposal to correct the present treatment of public stockholding,
the report noted that at present, "Public Stockholding for Food
Security Purposes" is included in the Green Box, the category
of subsidies that are minimally or non-trade distorting. There are
many other items also in this Green Box, including measures to protect
the environment and subsidies to farmers that are not directly tied
to production, most of which are used by the developed countries,
which provide very large amounts of subsidies under this Box.
WTO member countries are allowed to provide all these other Green
Box subsidies without limit. However, only in the case of the Public
Stockholding for Food Security Purposes does the Agriculture Agreement
place the condition that the difference between the acquisition price
and the external reference price should be accounted for in the AMS.
The report said: "This treatment of the developing countries'
support for public stockholding is discriminatory and there is thus
much logic in the G33 proposal not to count this expenditure as part
of the trade distorting subsidy which goes into the calculation of
AMS. Just like the treatment for other Green Box measures such as
decoupled supports, insurance, environmental protection and other
support instruments provided by developed countries under the ‘Green
Box', Public Stockholding for Food Security Purposes should all the
more be treated as a Green Box measure without any conditions attached
It is important and pertinent to note that the G-33's proposal (JOB
AG/22 of 13 November 2012) is not a new proposal only recently formulated
by the group. In fact, the proposal reproduces a part of the last
version of the WTO's Doha agriculture modalities text of 6 December
2008 (TN/AG/W/4/Rev. 4, Annex B). The text on this issue had been
included by the Chair of the Agriculture negotiations in this modalities
draft, without square brackets, denoting that it enjoyed consensus
and that the text on this issue had there was already ‘stabilised'.
"The G33 proposal therefore is being put forward as a text that
had already been agreed to by the membership, and that should be part
of an ‘early harvest' of the Doha work programme," said the report.
The South Centre added that the G-33 proposal would also provide a
solution for the discrimination in the way the Agreement on Agriculture
rules stipulate how the AMS is to be calculated when developing countries
undertake public stockholding programmes.
The present formula in the Agreement leads to an artificial and inflated
figure, making it very difficult for developing countries to provide
for or to implement these programmes in an adequate manner or to an
adequate extent. The reasons for this problem is that prices of agricultural
commodities, especially staple foods, and including vegetables and
meats, have increased manifold, in some cases by three or four or
more times, compared to the period when the Uruguay Round was negotiated.
Yet the benchmark used to calculate the AMS supports as stipulated
by the Agreement is still the prices of 1986-1988.
Thus, said the report, there would be a very significant difference
between the prices at which the government presently purchases food
items from the farmers or the traders, and the reference prices which
are based on 1986-88 levels.
"Such large price differences would be used to count the amount
of subsidies. With this type of calculation, which is clearly unfair,
the government schemes could easily exceed the maximum level of AMS
or any de minimis that the developing countries could have."
This is especially because most developing countries declared zero
or low amounts of AMS in their Uruguay Round schedules, as they were
too poor to provide subsidies in the past periods and their negative
support was not reflected in their AMS schedules. Thus, many of them
have to rely on the de minimis subsidies (which are limited only to
10% of the production value for the majority of developing countries,
and 8% in the case of China).
According to the report, the G-33 proposal sidesteps these problems
by making developing countries' public stockholding programmes a Green
Box measure without any conditions, thereby bringing this Green Box
measure in line with other Green Box measures largely used by developed
countries. This implies that the developing countries will not have
to restrict their Public Stockholding programmes fearing that they
may breach their 10% de minimis.
"At a systemic level, the proposal in its original form, if accepted,
would have injected a small dose of ‘equity' in the Agreement on Agriculture,"
said the report, noting that a major and glaring loophole created
in the Uruguay Round's Agreement on Agriculture to the benefit of
the developed countries was the ‘Green Box' (or Annex 2 of the Agreement
The Green Box allows countries to provide a range of support programmes
in agriculture, and these supports can be provided without limits.
However, the programmes elaborated upon under the Green Box (Annex
2) are those provided by developed countries. They include direct
payments to producers, decoupled income support (supports given to
landowners whether or not they produce as these subsidies are not
tied to production); insurance payments of various forms and structural
adjustment assistance to retiring producers or resource retirement
The programmes that developing countries provide - government purchases
from producers at administered prices - though included in the Green
Box, has to be ‘counted' under a country's AMS (footnote 5 of Annex
2), if the administered price is more than the external reference
price, determined on the basis of 1986-88 prices.
"Thus, the current Agreement on Agriculture imposes a triple
jeopardy on developing countries." First, a subsidy is alleged
when foodstuffs are procured from low-income or resource-poor producers
at an administered price by artificially comparing this price with
1986-88 prices. "This is most inappropriate."
Second, in some cases, the subsidy is calculated on the total production
and not on the quantity actually procured, which also inappropriately
magnifies the amount of the alleged subsidy.
Third, this alleged subsidy is required to be counted as a trade distorting
subsidy, whereas huge and real subsidies given by developed countries
to their farmers under similar or equivalent programmes are not to
be counted as a trade distorting subsidy.
This inequity in the rules is further compounded by the fact that
most developing countries bound themselves at zero AMS in the Uruguay
Round (this was the case for 61 out of 71 developing countries when
the WTO came into effect), said the report.
Since then, it added, most acceding developing countries have also
had to bind their AMS at zero. Those developing countries which have
declared providing some AMS in fact only provided very small amounts
due to their fiscal limitations. As a result, developing countries
effectively bound themselves to not being able to provide ‘trade-distorting'
(AMS) domestic supports aside from the ‘de minimis' amount.
In stark contrast, developed countries in the Uruguay Round declared
high levels of AMS. Their Uruguay Round commitment was a reduction
of AMS supports by only 20%, over the implementation period of 6 years
(1995-2001). Since 2001, there is no commitment for them to reduce
their AMS. After reductions, at the end of its Uruguay Round implementation,
the US has a bound AMS ceiling of US$19 billion. The EU (27) has a
bound AMS ceiling of 72 billion euros.
Since the understanding in the Uruguay Round is that the developed
countries would have to progressively reduce their AMS, "there
has been a move by the major developed economies to shift more of
the supports to the Green Box, while maintaining very high levels
of their overall subsidies," said the report.
WTO data show that the total domestic support of the United States
grew from US$61 billion in 1995 (of which US$46 billion was in the
Green Box) to US$130 billion in 2010 (US$120 billion in the Green
The European Union's domestic support went down from 90 billion euros
in 1995 (19 billion in the Green Box) to 75 billion euros in 2002
and then went up again to 90 billion in 2006 and 79 billion in 2009
(of which 64 billion euros was in the Green Box). A broader measure
of farm protection, known as total support estimate, which is used
by the OECD in its reports on agricultural subsidies, shows the OECD
countries' agriculture subsidies soared from US$350 billion in 1996
to US$406 billion in 2011.
"In sum, while those developing countries declaring zero trade
distorting domestic supports were locked into providing zero amounts
of supports apart from the 10% de minimis product-specific AMS, developed
countries providing large amounts of AMS could still continue doing
so with a 20% reduction, while also moving large parts of the subsidies
to the Green Box."
The report noted that during the negotiations at the WTO, several
WTO members, mostly developed countries, have argued against the G-33
proposal, with some stating that it might lead to a distortion of
trade. They have sought to drastically narrow the scope of the proposal,
and to attach many conditions. One of the suggestions is to provide
an interim measure, in particular a peace clause (i. e. that there
be no dispute settlement cases taken against a country undertaking
public stocktaking) for a limited period e. g. two or three years.
"The prevention of a permanent solution along the lines of the
G33's original proposal would lead to a lost opportunity to attaining
some small amount of re-balancing to an iniquitous Agreement,"
said the report.
If such an interim ‘peace clause' solution is accepted, it should
only expire upon the conclusion of the agricultural negotiations mandated
under Art. 20 of Agreement on Agriculture in accordance with para
13 of the Doha Ministerial Declaration and a permanent solution along
the lines of the original G-33 proposal has been found.
It should also not be accompanied by cumbersome conditions that would
reduce its usefulness when it is put into operation. In addition,
the Peace Clause should cover any dispute arising from the Agreement
on Agriculture as well as the Agreement on Subsidies and Countervailing
Measures (ASCM), the report concluded.