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Manchester Journal of International Economic Law

Volume 11, Issue 2: 201-214, 2014

Ramifications of the Bali Ministerial Conference on Food Security and

Public Distribution Schemes: Is India Skating on Thin Ice?

Saloni Khanderia-Yadav

ABSTRACT: The problem of poverty is an acute one in India. Approximately thirty-three percent of

the Indian population live in dire poverty. However, India’s food security and public distribution

schemes have been creating an imbalance as far as its international obligations are concerned

primarily due to India’s commitment to secure on the one hand, the rights of the poor with respect

to food; and on the other hand the rights of the farmers who are highly dependent on the erratic

weather conditions of the nation. This thereby makes it incumbent for the nation to guarantee this

basic human right to food. However, the relevant provisions of the WTO’s Agreement on Agriculture

states that such governmental support for the purpose of food security and public stockholding

programs shall be no more than the ceiling limit of ten percent has caused some concern for Indian

policy-makers. Consequently, it was agreed at the recent Bali Ministerial Conference that by virtue

of the peace clause, member-nations of the WTO would not invoke dispute settlement proceedings

against a developing nation crossing the 10% mark, until a permanent solution is agreed upon. This

paper delves to understand implications of India’s food security and public distribution schemes in

the international realm; and thus suggest solutions as far as imbalances are concerned.

1. INTRODUCTION

International trade regulation seems to be hanging by the thread for the last decade, with the

‘near death experience’ of the Doha Development Agenda (popularly known as the DDA)1 of

the World Trade Organization (WTO).2 As the Doha Round promised to make remarkable

Dr Saloni Khanderia-Yadav is a Research Associate at National Law University, New Delhi, India. She can be

contacted at [email protected]. 1 The Doha Development Agenda or the DDA is the ‘semi-official’ name of the WTO’s forth Ministerial Conference

in Doha, Qatar in 2001. As the name suggests, the Agenda of the Doha Ministerial Conference was to bring about

greater development for developing and least-developed countries in terms of trade; and in particular matters relating

to agriculture, food security and investment. Unfortunately, the DDA suffered a serious ‘blow’ due to disagreement

among policy-makers who suggested that implementation of the DDA would result in shrinking the Members policy-

space. 2 Marrakesh Agreement Establishing the WTO, 15 Apr. 1994, The Legal Texts: The Results of the Uruguay Round

of Multilateral Trade Negotiations 4 (1999), 1867 U.N.T.S. 154, 33 I.L.M. 1144 (1994) [hereinafter Marrakesh

Agreement or WTO Agreement]. The WTO was established by the Marrakesh agreement and consists of a Preamble,

XVI Articles, Four Annexure and Declarations, Decisions and Understanding. The agreements cover goods, services

and intellectual property; with underlying principles of liberalization, commitments to lower customs tariffs and

other trade barriers, also containing certain permitted exceptions.

Bali Ministerial Conference on Food Security and Public Distribution Schemes

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contributions as far as multilateral trade is concerned, particularly in the areas of investment,

food security and livelihood to the benefit of developing and least developed nations,3 it

unambiguously failed to live up to its expectations thereby causing the crusaders of this

multilateral trade system to doubt the veracity of the WTO’s claims.4 This rising cynicism

among the Members of the multilateral trade regime under the auspices of the WTO

undoubtedly led the frustrated Members to turn to greener pastures in the form of bilateral and

regional trade Agreements, in order to fully realize the fruits of trade liberalization. However,

neither bilateralism nor regionalism has been fully successful in achieving trade liberalisation

the way a multilateral trade regime would: for obvious reasons. Firstly, these Agreements only

serve the interests of Members party to such Agreements. Secondly, they lead to some form of

‘spaghetti bowl’ of rules and regulations with a plethora of rules; often causing much confusion

among policy-makers.5 On the other hand, multilateral trade regime, regulated by the WTO

effectively solves this problem with a fixed set of rules and regulations to govern its Members.

This remarkable aspect has led many nations to return back to multilateral negotiations and

breathe new life into the doomed DDA. Apropos it had become important for nations to re-

instil faith into multilateral trade liberalization; especially after the stalemate that the DDA had

created and sustained for twelve years.

2. WHAT HAPPENED AT THE BALI MINISTERIAL CONFERENCE?

The Bali Ministerial Conference took place in the wake of this rising frustration in the

multilateral trade regime that the Doha Round had created.6 For most, its main ideal was to

revive faith in the system: that many thought was long dead. For this, it was vital for the

Ministerial Conference to deliberate upon issues and aspects upon which Members would find

it unproblematic to concur upon. Hence, the central theme of the Bali Round was to provide a

pedestal for nations to negotiate upon issues that would further the cause of trade liberalization.

Against this backdrop, the Bali Ministerial Conference was historic for it sought to bring

about successful negotiations on trade facilitation7, agriculture8, cotton9 and more favourable

treatment to least developed nations10. And it did. The principal champion of this Round has

3 See WTO, Ministerial Declaration of 14 November 2001, WT/MIN(01)/DEC/1, 41 I.L.M. 746(2002) [hereinafter

Doha Declaration]. The Doha Declaration reaffirms that:

International trade can play a major role in the promotion of economic development and the

alleviation of poverty. We recognize the need for all our peoples to benefit from the increased

opportunities and welfare gains that the multilateral trading system generates. The majority of

WTO Members are developing countries. We seek to place their needs and interests at the heart

of the Work Programme adopted in this Declaration.

4 Surendra Bhandari, ‘Doha Round Negotiations: Problems, Potential Outcomes, and Possible Implications’, Trade,

Law and Development, 2012, 4(2): 353-84. 5J. Bhagwati (1993), ‘Regionalism and Multilateralism: An Overview’, in Jamie de Melo and Arvind Panagriya

(eds.), New Dimensions in Regional Integration (New York: Press Syndicate of the University of Cambridge, 1993);

Richard Baldwin, ‘Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on The Path To Global Free

Trade’, NBER Working Paper, 2006, No. 12545, available at www.nber.org/papers/w12545. 6 See WTO, Ministerial Declaration of 7 November 20013, WT/MIN(13)/DEC, [hereinafter Bali Round]. 7 WTO, Ministerial Decision: Agreement on Trade Facilitation, WT/MIN(13)/36. 8 WTO, Ministerial Decision: Public Stockholding for Food Security Purposes, WT/MIN(13)/38. 9 WTO, Ministerial Decision: Cotton, WT/MIN(13)/41. 10 WTO, Ministerial Decision: Preferential Rules of Origin for Least-Developed Countries, WT/MIN(13)/42.

MJIEL Vol. 11 Iss. 2 2014 Saloni Khanderia-Yadav

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‘hands-down’ been the Agreement on Trade Facilitation, which endeavours to contribute

approximately U.S. $ 1 trillion to the global economy.11 Consequently, the deal was historic

for the reason that it was the first real multilateral negotiation since the inception of the WTO.

Nevertheless, it is important to understand that negotiations at the Bali Ministerial also

implicate certain issues such as food security and public distribution which may be of far

reaching consequences to many nations. These issues have especially involved the interests of

developing nations that face peculiar challenges in weighing and balancing the basic human

right to food vis-à-vis the obligations imposed by international trade Agreements. In a related

vein, developing countries like India have always faced strong opposition about their schemes

that endeavour to create food security among the masses that are suffering in abject poverty. In

this context, this article endeavours to understand the rationale of the recent Bali Round at the

WTO with respect to food security and public distribution schemes; and its consequent impact

on the related public policy in India with respect to public distribution as a means to provide

the poor with basic rights.

3. ADDRESSING POVERTY AS A SOCIAL CAUSE: INTERNATIONAL INITIATIVES

TO GUARANTEE THE RIGHT TO FOOD

In general, poverty is characterized by economic and social backwardness, so as to cause

persons living in such backwardness to be marginalized by the society. Accordingly, poverty

may either be expressed in an absolute or relative manner. While defining poverty in an absolute

manner, the income disparity would be measured according to the income necessary to live and

enjoy a life with minimum essentials. On the other hand, the measurement of poverty in a

relative manner involves measuring the income disparity according to the general average

income in a given society. Hence, while poverty may either be measure in absolute or relative

terms, they indicate economic and social backwardness, so as to exclude such persons from

enjoying the bare minimum essentials in life.12

The United Nations also defines poverty as:

The total absence of opportunities, accompanied by high levels of undernourishment,

hunger, illiteracy, lack of education, physical and mental ailments, emotional and social

instability, unhappiness, sorrow and hopelessness for the future. Poverty is also

characterized by a chronic shortage of economic, social and political participation,

relegating individuals to exclusion as social beings, preventing access to the benefits

of economic and social development and thereby limiting their cultural development.13

Accordingly, the Millennium Development Goals developed under the auspices of the

United Nations, recognize the exigencies to halve the poverty rates by the year 2015, for a more

11 WTO, Ninth WTO Ministerial Conference: Days 3, 4 and 5: Round-the-clock consultations produce ‘Bali

Package’, www.wto.org/english/news_e/news13_e/mc9sum_07dec13_e.htm (last updated 19 Feb. 2014). 12 Christopher Garroway and Juan R. de Laiglesia, ‘On the Relevance of Relative Poverty for Developing

Countries’, OECD Development Centre: Working Papers, No. 314, 25 Sept. 2012; James E. Foster, ‘Absolute versus

Relative Poverty’, American Economic Review, 88(2): 335-41. 13 R. Blanco, ‘How we define poverty – Eradicating Extreme Poverty and Hunger’, UN Chronicle, 2002, 39(4).


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sustainable development as far as food is concerned; which could be achieved by understanding

the problems faced by the poorest of the poor and hence meeting the demands of such persons.14

In addition, the right to food has been recognized as an international right upheld by the

International Covenant on Economic, Social and Cultural Rights vide Article 11 of this

Covenant. The Covenant clearly delineates the people’s right to food as a basic human right for

which the nation must strive to ensure minimum means to subsistence for the people to ensure

food security for all.15

The issue of food security and public distribution has therefore been receiving global

attention over the last couple of decades; understanding that ensuring basic access to food does

go a long way in certifying long term goals of employment and a better standard of living. In a

related vein, while the World Trade Organization endeavours to affirm a higher standard of

living to the citizens of its Members, it underpins the significance of food security and the

related scheme of public distribution in achieving these ends. In particular, the WTO’s

Agreement on Agriculture 16 recognizes the significance of food security and public

distribution in the eradication of poverty and in the achievement of better employment rates.17

The Agreement therefore seeks to recognize measures supporting farmers which may not be

trade distorting; thereby prohibiting measures by its Members taken for purposes of public

stockholding, and which have the impact of distorting trade.18 In general, the Agreement

domestic support provided to farmers through the Aggregate Measurement of Support (AMS)

which measures the aggregate support provided to the Member’s farmers by means of a subsidy,

14 UNDP, Millennium Development Goals, www.undp.org/content/undp/en/home/mdgoverview.html (last updated

20 Feb. 2014). 15 Article 11 of the International Covenant on Social, Economic and Cultural Rights recognises:

1. The States Parties to the present Covenant recognize the right of everyone to an adequate

standard of living for himself and his family, including adequate food, clothing and housing, and

to the continuous improvement of living conditions. The States Parties will take appropriate steps

to ensure the realization of this right, recognizing to this effect the essential importance of

international co-operation based on free consent.

2. The States Parties to the present Covenant, recognizing the fundamental right of everyone to

be free from hunger, shall take, individually and through international co-operation, the

measures, including specific programmes, which are needed:

(a) To improve methods of production, conservation and distribution of food by making full use

of technical and scientific knowledge, by disseminating knowledge of the principles of nutrition

and by developing or reforming agrarian systems in such a way as to achieve the most efficient

development and utilization of natural resources;

(b) Taking into account the problems of both food-importing and food-exporting countries, to

ensure an equitable distribution of world food supplies in relation to need.

16 Agreement on Agriculture, 15 Apr. 1994, Marrakesh Agreement Establishing the WTO, Annex 1A, The Legal

Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 33 (1999), 1867 U.N.T.S. 410. [Not

reproduced in I.L.M.] 17 Id, The Preamble read along with Art. 6: 2. In particular, Article 6:2 of the Agreement on Agriculture permits

domestic support to producers for the purpose of agricultural and rural development and thus exempting developing

country members from domestic support reduction commitments. 18 Id, Annex 2. Annex 2 of the Agreement on Agriculture lists the domestic support measures which are exempted

from reduction commitments. Among other things, it states that domestic support for the purpose of public

stockholding for food security purposes shall be treated as a non-trade distorting measure; provided that

governmental stockholding programs for food security purposes in developing countries is ‘transparent and

conducted in accordance with objective criteria or guidelines.’ In addition, ‘programmes under which stocks of

foodstuffs for food security purposes are acquired and are released at administered prices, provided that the

difference between the acquisition price and the external reference price is accounted for in the AMS.’


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for each product. 19 Accordingly, AMS may either be product specific 20 or non-product

specific.21 Nonetheless, the Agreement permits certain types of measures or certain types of

domestic support which have a negligible impact on trade distortion. Consequently, measures

undertaken by the Members for the purpose of public stockholding and food security purposes

have been classified as ‘Green Box Measures’; and subsidies or government assistance

provided for the above-mentioned purposes are permissible within the scope of the Agreement

on Agriculture with a caveat that such governmental assistance does not exceed beyond 10%

in the case of developing countries.22 In other words, in the event the support is below 10% for

food security and public stockholding, such governmental assistance may be increased up to

10% to be outside the scope of the Agreement; and not be considered as a trade distorting

subsidy. The striking element of this Agreement remains the fact that while subsidies in the

form of direct payments are exempt from the preview of this Agreement,23 governmental

support to the farmers to ensure public stockholding and food security must be limited to a

maximum amount of 10% (in the case of developing nations). This Aggregate Measure of

Support is calculated on the basis of the difference between the price of the government support

(also known as the Minimum Support Price or MSP) and the external reference price; which is

then multiplied by the total quantity of the agricultural produce that may be eligible to receive

such governmental assistance.24 Apropos, the government support price (MSP) must be no

more than the prevailing market rate; and at the same time not exceed the external reference

price which is calculated with the help of a base year (1986-88).25 Consequently, the ERP for

India has been fixed at Rs. 3520/- and Rs. 3540/- per metric tonne for rice and wheat

respectively.26

Despite the fact that the provisions in the Agreement of Agriculture give due regard to

conditions of poverty in Member nations, and especially those prevalent in developing nations;

by permitting such nations to develop schemes to address food security and public

stockholding, the ceiling limit consenting to governmental assistance in order to achieve such

purposes up to a maximum of 10% of the AMS has raised several implications on the individual

Member’s commitments to food security.

The recent Bali meeting has further raised vital questions about the fate of Members’

ideals of ensuring food security and public distribution schemes to safeguard the rights of the

poor. What formed the backbone of this contention was the method used to calculate the AMS,

primarily with the use of the Minimum Support Price or the MSP. For most, the use of the MSP

in order to calculate the AMS and finally evaluate whether or not the ceiling limit of 10% has

19 Id, Annex 3. 20 A product specific subsidy has been classified as the support provided for each agricultural commodity. 21 A non-product specific subsidy is the over-all or the total amount of subsidy provided by the Government on

inputs such as fertilizers, seeds, irrigation, etc. 22 Agreement on Agriculture, supra note16, Article 6: 4(b). 23 Id, Annex 2: 5. 24 Id, Annex 3: 8. 25 Id, Annex 3 9. 26 G/AG/AGST/IND.


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been breached, seems to be a highly distorted mechanism for most developing nations;

especially nations like India who spearheaded this contention.

The highlights of this issue were that, firstly, the use of the base year in evaluating the

MSP seems to be vastly outmoded. As mentioned above, the base year has been fixed at the

prices prevalent from 1986-88. In other words, in calculating the AMS, and in order to ascertain

whether or not the ceiling limit of 10% has been breached, Members must make use of the

prices prevalent during the base year period. While it is certain that prices prevalent during the

base year period are no longer prevalent; it is also certain that in order to fulfil the commitments

of food security and public stockholding, WTO Members like India are ‘walking’ closer to the

ceiling limit of 10%. This is moreover due to the fact that while prices of basic food

commodities have been raised since the base year, it becomes imperative for governments to

‘stick’ to the limit of 10% as the difference between the market price and the external reference

price is evidently wider. In other words, while the Agreement on Agriculture makes it

incumbent that the price at which the government procures the agricultural product from the

farmer (MSP) must not be less than the market price; the AMS is bound to rise closer to the

10% limit as the market price for the produce gets higher while the external reference price

(ERP) remains stable. Any difference that would outweigh the so-called AMS limit would then

account as a trade-distorting subsidy within the scope and meaning of the Agreement on

Agriculture.

India which remained at the forefront of this argument contended that ideally any support

provided by the Government of developing Member nations like India for food security and

public stockholding purposes should be without any qualifications attached to it; in similarity

with other Green Box measures ascribed in the Agreement on Agriculture. Hence, any pre-

requisite that stood in the way of a developing nation’s food security programs would only

amplify the friction between international trade liberalization and the basic human right to food;

as India firmly believed.

Against this backdrop, the Government of India which was represented by Minister of

Commerce and Industry, Mr Anand Sharma made it clear that the nation was committed to

protect the interests of the poor; for which both the food security and public distribution

schemes were vital.27 Hence, if the Bali deal had to rectify the faux pas committed at the DDA,

it would have to iron the wrinkles and mend the differences between the developed and

developing world as far as the food security and public stockholding schemes are concerned.

Finally an interim solution was negotiated upon until a permanent solution can be agreed upon

in response to the issue of food security in the form of a ‘peace-clause’.

The peace clause, also referred to the due restraint clause 28 is a stop-gap measure

pending a permanent solution to the problem of crossing the AMS limit while granting subsidies

27 WTO, Address by Shri Anand Sharma, Union Minister of Commerce and Industry, At the Plenary Session of the

9th Ministerial Conference of the WTO, 4 Dec. 2013, http://pib.nic.in/newsite/PrintRelease.aspx?relid=101013 (last

updated 31 March 2014). 28 Originally, the peace clause, officially known as the due restraint clause has been part of Article 13 of the

Agreement on Agriculture. The provision standardizes the application of other Agreements (Agreement on Subsidies

and Countervailing Measures) in the event of procurement of food grains by the Government at subsidized rates. As


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for food security purposes. It therefore implies that WTO Members would not be able to

challenge measures taken by other developing country Members for the purpose of securing

food security and public distribution for the poor, before the Dispute Settlement Procedures29;

for a period of four years; even if the AMS limit has been crossed. 30 Nevertheless, it is

important to realize that the peace clause or the due-restraint clause is only a temporary solution

to the problem for a period of four years till the next Ministerial Conference. The Bali deal

therefore had some serious ramifications for India as far as her food security scheme is

concerned. While the initial bargain was the operation of a peace clause for a period of four

years as an interim solution to the ‘problem’ of food security, the Indian counterparts

vehemently opposed to the same, stating that India would not be willing to strike any

negotiation if the nation’s food security program is not given due respect. It was therefore

agreed upon that the peace clause would remain in force pending a final mechanism ‘to address

the concerns of food security of developing nations under the DDA.’31

4. RAMIFICATIONS OF THE BALL ROUNDS ON THE INDIAN

FOOD SECURITY PROGRAMME

The problem of poverty is an acute one in India. With the nation being rated as the home to a

third poorest people in the world32; it is apparent that a large majority of the people in the nation

live in abject poverty. That is to say, approximately 33% of the Indian population is living in

poverty33; thus making the issue of poverty a sensitive one, thereby requiring urgent attention.

While a large majority of the Indian population not only suffering from critical shortages of

food due to the inability to afford the procurement of such food, in order to satisfy the minimum

calorie requirement on a daily basis; the problem of farmer suicide has also been escalating

over the recent years. On an average, approximately 16,264 farmers commit suicide in India

every year34 primarily due to the lopsided strategies concerning governmental support to the

farmers, rising crop prices, fluctuations in the weather conditions: leading to crop failures to

name a few. Factors like these certainly have a negative impact on the economic growth in

general and in addition influence the aspects of employment, literacy level and GDP in

particular. It has thereby become extremely significant to address such factors in the interest of

the society. Realizing the significance of the issue of poverty and its consequent impact on the

far at as the Bali Rounds are concerned, the ‘peace-clause’ has been the result of the due deliberations of the G-33;

or the group of 33 developing nations. The clause was described as an interim solution by the Committee on

Agriculture under the aegis of the WTO; which opined that in order for the peace clause to be successful, the nature

and character of the solution (legal/political); the coverage; the transparency and safeguards are some aspects that

must be taken into account of in order to make the peace-clause successful. See, WTO, Informal TNC Meeting at

the Level of Head of Delegation, Trade Negotiations Committee, JOB/TNC/23, p. 4, 15 Oct. 2013. 29 DSU, Dispute Settlement Rules: Understanding on Rules and Procedures Governing the Settlement of Disputes,

Marrakesh Agreement Establishing the WTO, Annex 2, The Legal Texts: The Results of the Uruguay Round of

Multilateral Trade Negotiations 354 (1999), 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994) [hereinafter DSU]. 30 WTO, Bali Ministerial Conference: Ninth Session, Public Stockholding for Food Security Purposes: Ministerial

Decision of 7th Dec. 2013, WT/MIN(13)38, 11 Dec. 2013. 31 WTO, G-33 Non-Paper, Committee on Agriculture, Special Session, JOB/AG/25, 3 Oct. 2013. 32 United Nations, The Millennium Development Goals Report, 2013 (19 Feb. 2014), www.un.org/millenniumgoa

ls/pdf/report-2013/mdg-report-2013-english.pdf 33 Id. 34 P Sainath, ‘Farm Suicide Trends In 2012 Remain Dismal’, The Hindu, 29 June 2013, www.thehindu.com/opi

nion/columns/sainath/farm-suicide-trends-in-2012-remain-dismal/article4860980.ece (last updated 20 Feb. 2014).


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overall development of the society, eradication of poverty has been one of the prime agendas

of the global community. The means to this end would primarily be to address the right to food

security and the inter-linked problem of public distribution; understanding that the problem of

food has become the root of all evils.

One of India’s major trepidations at the Bali Ministerial Conference have been the

feasibility of the provisions of the Agreement on Agriculture vis-à-vis the National Food

Security Act35 that seeks to addresses the problems of millions of poor in the nation. Besides,

the Act also identifies with the tribulations faced by the farmers given the erratic weather

conditions. The Act hence also endeavours to find a solution to these insecurities of the farmers

by means of the public stockholding program.

The Right to Food and the co-related Targeted Public Distribution System (TPDS)

remain at the backbone of India’s National Food Security Act, 2013 (NFSA). By and large, the

Act endeavours to provide legal backing to every individual’s constitutional right to food; with

the right consequently being upheld by the Indian Supreme Court by virtue of a writ petition,

in the landmark judgement of People’s Union for Civil Liberties v. Union of India. 36

Accordingly, the Supreme Court of India re-affirmed that right to life under Article 21 of the

Indian Constitution necessarily includes the right to food.37 The right to food would therefore

entail the implementation of the corollaries of this right (to food) with effective schemes and

programs on public distribution, mid-day meal and Integrated Child Development Services and

subsidization of food grains to people living below the poverty line (BPL), to name a few.

5. THE IMPLEMENTATION OF THE NFSA, 2013

The NFSA bears the responsibility on the Central and the State Governments for the effective

implementation of the right to food as enabled by virtue of the NFSA. The functioning of this

Act is hence either by means of centralized or decentralized procurement. In cases of the former,

the Food Corporation of India (FCI) is responsible for procuring food grains and crops directly

from the farmers; whereas in decentralized procurement, the FCI delegates this power upon the

State Governments in order to procure food grains from the farmers and eventually distribute

the seeds at subsidized rates to the poor.38

The Act creates a legal right to food, with the provisions of the Act given teeth mainly

by virtue of the Targeted Public Distribution System (TPDS). Prior to this Act, public

distribution of food was primarily dependant on imported food grains. Subsequently, the Food

Corporation of India began to improve the domestic production for purposes of the PDS. As a

35 The National Food Security Act, alternatively known as the Right to Food Act came into existence with

retrospective application in India from 5 July 2013. 36PUCL v. Union of India, Interim Order Dated 28 Nov. 2001, Supreme Court Writ Petition [civil] No. 196 of 2001;

PUCL v. Union of India, Interim Order Dated 10 Jan. 2008, Supreme Court Writ Petition [civil] No. 196 of 2001 37 Indian CONST. art 21. 38 The food grains are sold at various ration shops, also known as fair-price shops across the Indian continent. The

food grains are accordingly distributed among the persons below the poverty line, and the beneficiaries of the

Antyodaya Anna Yojana (AAY) scheme: which further segregates groups into the poorest among the poor. Hence,

the AAY scheme is specifically made to benefit the persons like marginal farmers, destitute, landless agricultural

labourers and persons living on a daily wage basis, to name a few.


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result, the later years witnessed the setting up of ‘fair price shops’ to improve the distribution

of food grains to the poor. Accordingly, the beneficiaries have a right to collect subsidized

grains like rice at wheat.

The essence of the NFSA remains that it recognises the right to food as a legal right, as

against a mere entitlement of the poor.39 The rationale behind this Act was to identify the poor

who would thus be entitled to subsidized food grains. For this purpose, both the Central and the

State Governments have been made responsible to identify the below poverty line (BPL) and

poorest of the poor families (Antyodaya Anna Yojana). Consequently, each State is responsible

by virtue of the Act to identify the BPL families who are the beneficiaries of the TPDS scheme,

and are entitled to food grains because of a BPL ‘ration-card’. On the other hand, the AAY

families have similar rights, and hold an ‘AAY ration-card’. Against this backdrop, the BPL

and AAY families are identified with the combined efforts of the National Sample Survey

Organization, the Planning Commission, the Central Government and the Ministry of Rural

Development. First, the National Sample Survey Organization conducts a survey of the average

consumer expenditure on basic household products. This survey is conducted every five years.

The Planning Commission of India then uses the results of the survey to identify the BPL

families. Next, the Central Government assigns food grains based on the number of BPL

families. The Ministry of Rural Development then identifies whether the BPL list has a case of

over or under-inclusion. The State Government finally identifies the eligible BPL families for

distributing the food grains allocated by the Central Government. For this purpose, the Unique

Identification or Adhaar System has also been developed, thus allotting a unique number to

each person registered in the database. Albeit the fact that the Unique Identification

System/Adhaar does not currently poses any legal backing at the moment, the scheme seeks to

identify cases of over and under-inclusion on the basis of the System’s database containing the

resident’s data. In addition to the public distribution scheme (PDS), each State also has its own

‘Mid-day meal program’ wherein school children are fed lunch as an incentive to go to school;

and thereby lower child employment.

Procurement of food grains on either a centralized or decentralized manner occurs on the

basis of the Minimum Support Price (MSP); or the procurement price paid by the Government

to the farmers. The MSP must therefore be higher than the prevailing market price.

Additionally, the MSP has been fixed by the Central Government of India on the basis of the

recommendation of the Agricultural Costs and Prices Commission for the procurement of such

food grains.40

39 Historically India’s Public Distribution System was marked by the Targeted Public Distribution System (TDPS).

While originally, the food grains used to be imported in order to meet the needs of the poor, the Indian Government

subsequently set-up the Food Corporation of India (FCI) along with the Agricultural Prices Commission in order to

be able to better cater to the needs of the poor. The TDPS was a result of this effort, with rationing of food grains

vide ration shops distributed over the country. As a result, the Government decided to enact the NFSA in order to

convert the legal entitlement into a legal right. 40 See generally, Ruth Kumari, Food Security and the Targeted Public Distribution System in India, Asia Research

Centre Working Paper No. 38, London School of Economics and Political Science, London, UK, (2011); M.

Vinayak. Rao, Musharraf Sultan and A. N. Siddiqui, ‘Public Distribution Monitoring System (e-PDMS)’, in Gupta

et. al. (eds.), Compendium of E-governance Initiatives in India, (2008), pp. 260-67; Ahmed Tritah, The Public

Distribution System in India: Counting the Poor from Making the Poor Count (Toulouse, France: Universite des

Sciences Sociales, 2003).


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The Issue:

One of the major anxieties in the Indian situation has been the distortion in the demand and

supply chain as far as agricultural production is concerned. While the population of the nation

seems to increase by the day, the same does not seem to be the case with the supply of food

grains. This is chiefly due to the fact that farmers in the country hold small agricultural land

and are far from being aware of scientific methods of production. In such circumstances,

government support to both the farmers and the population (especially the poor) seems to be

the best resolution. Hence, food security and public stockholding form part of integral

development policies in nations like India.

For the purpose of giving effect to the food security and public stockholding schemes,

while the MSP refers to the price paid by the government in order to procure the food grains

from the farmers, the issue price refers to the price at which the food grains are subsequently

sold to the poor for purposes of providing food security; by virtue of the legal right guaranteed

by the NFSA, 2013. In order to make the food grains affordable to the poor and provide teeth

to the provisions of the NFSA, the food grains are sold at extremely subsidized rates. Per se,

the rates of wheat and rice are Rs. 2/- and Rs. 3/- per kg respectively.41 In addition, every family

in the below poverty line and the families constituting the members of the AAY scheme are

entitled to thirty-five kilograms of these cereals per family per month.42 In other words, there

is a large gap between the prices at which the government procures these food grains, and the

price at which they are finally sold to the families eligible under the targeted public distribution

scheme. In such circumstances, this gap between the procurement price and the issue price

constitutes the food subsidy. In addition, the surplus stocks which are procured by the

Government to address future eventualities also constitute the food subsidy.

The prime concern as far as the issue of food subsidy to address the needs of the poor

under the food subsidy Act or the NFSA have been that the food subsidy or the margin between

the procurement price and the issue price have been increasing over the years. This is primarily

due to the fact that the procurement price has increased over the past few years, with other

factors such as cost of seeds, fertilizers and even transportation increasing. On the other hand,

the issue price has virtually been stagnant since the past few years.43

This rising food subsidy has had serious ramifications in the international realm, and

especially with respect to the WTO’s Agreement on Agriculture. While as mentioned

previously, the Agreement on Agriculture permits an Aggregate Measure of Support (AMS) at

a maximum of 10%, there is also a fear of breaching this limit for developing nations like India

41 ‘Report of the Expert Committee on National Food Security Bill’, (31 March 2014), http://eac.gov.in/reports/re

p_NFSB.pdf; Anuradha Sajjanhar and Subir Gokarn, ‘Food Security: The Act and Beyond’, http://brookings.in/the-

food-security-act/ (last updated 31 March 2014). 42 Sakshi Balani, ‘Functioning of the Public Distribution System: An Analytical Report’, PRS Legislative Research,

2013, at 4. 43 ‘National Food Security Bill: Challenges and Options’, Commission for Agricultural Costs and Prices, Ashok

Gulati, Jyoti Gujral and T. Nandakumar, Dec. 2012; ‘Report of the Export Group to advise the Ministry of Rural

Development on the Methodology for Conducting the Below Poverty Line, Census for the 11th Five-Year Plan.

(Chairperson: Dr. N.C. Saxena) August 2009.


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under the commitment to guarantee food security for its citizens. This is moreover given the

fact that the ASP is calculated against difference between the procurement price and the

external reference price. As mentioned above, the recent years have witnessed a surge in the

procurement price paid by the government to the farmers; given the rise in cost of production

of the agricultural products. In addition, the external reference price prescribed under the

Agreement on Agriculture has also remained stable since the inception of the Agreement.

Moreover, the prices for the purpose of calculating the ESP are the prices prevalent in the years

1986-88 (the base year). What constitutes the greatest challenge has been the factor that this

difference between the procurement price and the ESP is then divided by the total agricultural

production eligible for the subsidy. The Agreement on Agriculture defines the agricultural

product eligible for the subsidy as the total amount of production in the given Member nation’s

territory. This method of considering the entire production as that eligible for the food subsidy

entails that there is a large disparity between the Agreement on Agriculture on the one hand,

and the respective scenarios at the domestic level on the other hand.

As far as the situation in India is concerned the Indian Government has merely procured

approximately thirty-percent of the total production of food grains on an average;44 with a

Government procurement of 64.2 million tonnes procured by March, 2013 by the Indian

Government.45 This creates a great imbalance between obligations at the international level for

purposes of trade liberalization and commitments at the domestic level for the purposes of food

security. For India, the WTO obligations have left the nations lurking behind in order to fulfil

its commitments to ensure food security for all its citizens. Even the ‘peace clause’ which

ensures that developed country Members would not be in a position to challenge such

commitments made by developed nations for a period of four years is merely an interim

solution, pending a more permanent one.

While India’s present amount of support in the form of food subsidy remain below the

authorized limit prescribed by the Agreement on Agriculture, the nation cannot ignore its

commitment at the domestic level on the one hand; and the complications the same has created

on the other hand given the methodology to calculate the food subsidy in order to be treated as

a trade distorting measure. For most, the nation’s deepest trepidation remains the Agreement

on Agriculture’s requirement that procurement of food grains from the farmers must be made

at current market prices. As for India, as mentioned previously, procurement of food grains

from the farmers has been on the basis of the Minimum Support Price, which is higher than the

current market prices. Hence, according to the requirement of the Agreement on Agriculture,

such procurement on the basis of MSP would only constitute a food subsidy; and be liable to

challenge under WTO’s Dispute Settlement Procedures for reasons of violations of the WTO’s

Subsidies and Countervailing Measures Agreement46, in the event it crosses the 10% mark.

44 Sakshi Balani, ‘Functioning of the Public Distribution System: An Analytical Report’, PRS Legislative Research,

2013. 45 C. P. Chandrasekhar, ‘India’s Food Conundrum’, The Hindu, 11 May 2013, available at www.thehindu.com/opi

nion/columns/Chandrasekhar/indias-food-conundrum/article4705855.ece. 46 Agreement on Subsidies and Countervailing Measures, 15 Apr. 1994, Marrakesh Agreement Establishing the

WTO, Annex 1A, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 231

(1999), 1869 U.N.T.S. 14. [Not reproduced in I.L.M.]


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6. A PLAUSIBLE WAY OUT

Even deliberations at the Bali deal pertaining to due restraint provided by Member nations in

the event a developing nation crosses the permissible AMS limit does not seem a very feasible

solution; primarily because the recent inflation rates have only accounted for an increase in the

minimum support price/procurement price in countries like India. Besides, the peace-clause

only adds to the problem by presuming that nations like India have already breached the

international commitment of keeping the government support for food security and public

stockholding purposes within check; which may not always be the case. Most importantly, the

peace clause fails to regard the recent surge in food prices globally, by referring to the prevailing

prices in the base year in order to calculate the food subsidy.

To the extent that the recent Bali Ministerial Conference under the aegis of the WTO is

concerned, the Indian domestic policy on food security and public stockholding seem to be at

loggerheads with the international regulation on the issue; or at least seem to be reaching a point

of discrepancy between the domestic and international policy on the subject-matter.

For most, the current limit set for calculation of the AMS appears to be far from realistic,

given the rise in inflation. In other words, not only is method of calculating the food subsidy as

that when the procurement prices are higher than the current/prevalent market rates; but also

the fact that the same is measured against the external reference price based on those prevalent

in the years 1986-88 idealistic. In addition the fact that the peace-clause also endeavours to

provide an interim solution for a period of four years, is also a mere procrastination to the real

problem.

Against this backdrop, the most achievable solution at the moment appears to be, firstly,

negotiating upon a permanent solution, as against merely an interim one. There could be various

modalities for the same. One could be accepting the G-33’s proposal within the ambit of the

Doha Multilateral Round of negotiations at the WTO. 47 The G-33 proposal recommends

changes in the WTO’s Agreement on Agriculture with reference to the provisions on food

security and public stockholding. It basically seeks to keep these provisions in line with the

other measures permitted under the ‘green-box’. In other words, while the ‘Green-Box’

subsidies permissible by the Agreement on Agriculture do not prescribe any limit to be

considered as a trade-distorting measure; the fact that food-security and public-stockholding

which also fall under the scope of Green-Box subsidies are an exception to this rule, and contain

a ceiling limit beyond which they cannot be considered as non-trade distorting. Changing the

current scenario in order to also consider individual Member nation’s programs on food security

and public stockholding as free from any limit, in line with other Green-Box subsidies

47 WTO, G-33 Non-Paper, Committee on Agriculture: Special Session, JOB/AG/25, p. 3, 3 Oct. 2013. Also See,

International Centre for Trade and Sustainable Development, ‘G-33 Proposal: early Agreement on Elements of the

Draft Doha Accord to Address Food Security’, Information Note, Sept. 2013; South Centre, Informal Note,

SC/TDP/AN/MC9/1, Nov. 2013, at 7; South Centre, ‘The WTO’s Bali Ministerial and Food Security For Developing

Countries: Need for Equity and Justice in the Rules for Agricultural Subsidies’ (9 March 2014),

www.southcentre.int/wp-content/uploads/2013/11/Trade-Report-on-Food-Security_EN.pdf; Biswajit Dhar &

Roshan Kishore, ‘Prospects of the Bali Ministerial’, 1-17 (United Nations Economic and Social Commission for

Asia and the Pacific, Working Paper No. 136, 2013).


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endeavours to make the domestic policies of even developing nations like India more workable

and pragmatic.

Correspondingly, the G-33 proposal recommends that the Agreement on Agriculture

includes as measure as minimally trade distorting if the same is inter alia for the purpose of

securing food security in developing country Members. In a related vein, the G-33 proposal

proposes that procurement of food grains by the government at subsidized prices from poor

farmers for the purpose of either fighting poverty or for the purpose of achieving food security

shall not be needed for be accounted for in the calculation of the AMS. In other words, even

when the Governments are procuring grains at subsidized rates, the same need not be accounted

for in the AMS at all, when the sole purpose for this procurement has been to eradicate poverty

and meet the demands of food security.

The current scenario which treats both food security and public stockholding as an

exception to the above-mentioned rule seems to be merely suitable to the developed country

members of the WTO; given the fact that the these nations provide support to their farmers by

means of other methods and mechanisms mentioned in the Green-Box, and are hence free from

any ceiling limits. For instance, WTO Members like the United States and the European Union,

provide support to their farmers by means of direct funds transfer: a method which is not only

a permissible Green-Box subsidy, but is also free from any measurement against the external

reference price. Consequently, for nations like India, the tribulation that the external reference

price is measured on the basis of the base year of 1986-89 seems to be the foundation of this

predicament. In return, this phenomenon additionally adds to the imbalance between the

domestic and international policies as far as food security is concerned; therefore causing

countries like India to ‘skate on thin-ice’ if its international obligations are to be respected.

An alternate solution could thus be that a developing nation’s domestic policy obligations

of guaranteeing food-security and public stockholding be brought in line with other Green-Box

subsidies under the aegis of the Agreement on Agriculture. Secondly, and alternatively, the

external reference price is due for re-evaluation. In accordance, the International Centre for

Trade and Development recommends that developing countries may calculate the average on a

three-year rolling basis; as against the calculation on the base period of 1986-89. Alternatively,

the developing nations should be permitted to take in to account the rate of inflation prevalent

over the last four years; and on the basis of the same calculate the food subsidy.48

Lastly, considering that there seem to exist significant frictions between the Indian food

security program in the domestic realm and the Agreement on Agriculture, it has become vital

for Indian policy-makers to review the current food security program. This is moreover due to

the fact that the procurement of grains at subsidized rates from farmers is an expensive ordeal.

This system to certify food security can alternatively be replaced by programs like cash

transfers or food coupons for the poor, which prevent eventualities such as rotting of grains due

to excessive surpluses in the Government warehouses after procurement.

48 Biswajit Dhar & Roshan Kishore, ‘Prospects of the Bali Ministerial’ 6, 1-17 (United Nations Economic and Social

Commission for Asia and the Pacific, Working Paper No. 136, 2013).


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7. CONCLUDING REMARKS

The existing mechanism requiring Members of the WTO to account for subsidies on the

procurement of food grains in the event such procurement exceeds the maximum limit

prescribed by the Agreement on Agriculture has caused unnecessary predicaments for the

Indian food security program. In the event that the current provisions are kept intact, the Indian

food security program would have several ramifications. In the light of the current scenario, the

most plausible solution to the current clashes between the Agreement on Agriculture and the

Indian Food Security and Public Distribution System program appears to be that developing

country programs of for the purpose of food security and public distribution must be dealt with

without any prescribed limit on the AMS. Doing so would in turn assist developing nations to

achieve the international goals of poverty reduction and providing a better standard of

livelihood for its citizens.

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