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Policy Analysis

MC12: An Opportunity to Find an Enduring Solution on Public Stockholding

Public stockholding programs are essential for food security but can present various problems for many developing countries. Tanvi Sinha from The Commonwealth and Joe Glauber from the International Food Policy Research Institute present five options that could help negotiators find a long-lasting solution.

By Tanvi Sinha, Joe Glauber on November 24, 2021

The report Procuring Food Stocks Under World Trade Organization Farm Subsidy Rules identifies options that negotiators and policy-makers could pursue to reach a permanent solution at the World Trade Organization (WTO) to the problems some developing countries say they face when buying food at government-set (or government-administered) prices under their public stockholding programs for food security purposes. While public stockholding programs are essential for food security, they could potentially harm producers in other countries by distorting market prices and trade.

Under the WTO’s Agreement on Agriculture, government procurement for public stockholding programs is exempt from discipline if stocks are procured at current market prices. If procured at pre-announced administered prices, however, those outlays would potentially be counted toward a country’s overall limits on trade-distorting support. Some developing countries are concerned that their procurement of food at fixed prices under these programs may push outlays to exceed allowed limits, thus depriving them of the necessary policy space to meet domestic food security requirements. In this context, India and other members of the G33 developing country coalition have called for WTO members to agree to a “permanent solution,” following the 2013 Bali decision to exempt these programs from legal challenge under certain conditions.

While public stockholding programs are essential for food security, they could potentially harm producers in other countries by distorting market prices and trade.

This issue has been mainly put forward by the G33 group of countries, which have argued in favour of exempting all support under these programs from WTO ceilings. Their negotiating proposals include, but are not limited to, the following: exempting food bought at administered prices under public stockholding programs from the calculation of trade-distorting support; revisiting the external reference price in the calculation of market price support; taking into consideration excessive inflation rates; redefining eligible production; including new programs; and expanding product coverage. Other members have expressed concern that this would potentially open the door to some large developing country members providing unlimited support, thereby distorting global markets for food and agriculture, and undermining food security and farmers’ livelihoods in other countries. In this regard, members have suggested exempting public stockholding programs implemented by least developed countries (LDCs) and allowing for a more limited exemption if the procured stocks don’t exceed a certain percentage of the average value of production.

One of the criticisms of the current rules on public stockholding is that the formula for calculating the level of support is based on the difference between the administered price and an average price taken from a historical base period (for most members, the base period is 1986–1988). After 20 years of relatively stable prices, commodity prices spiked in the late 2000s and now are almost 50% above price levels in the 1986–1988 period. Members that raised administered procurement prices to keep pace with this inflation now find themselves at odds with support calculations based on what many argue is an outdated base period. Recent projections by the Organisation for Economic Co-operation and Development and the Food and Agriculture Organization of the United Nations (OECD-FAO Agricultural Outlook 2021–2030 report) suggest that price levels will continue to exceed 1986–1988 levels over the next decade.

One concern that has been expressed over the use of administered prices for public stockholding programs is that they potentially provide a floor for market prices, bolstering the prices that producers expect to receive when they are making planting decisions. Much like price supports, high administered prices can encourage overproduction. Thus, readjusting the base period to a period when market prices are “high” may underestimate support if market prices trend lower.

Given the negotiating positions (along with the market and policy context highlighted above), the report presents the following options that negotiators could consider to achieve a permanent solution for public stockholding for food security purposes.

  1. Updating the Base Periods Used to Calculate the Aggregate Measure of Support. For developing countries struggling to comply with WTO rules on domestic support when buying food for their public stockholding programs, this option would have the advantage of better capturing the degree of distortion arising from minimum support price policies by effectively taking into account the extent to which price inflation since the late 1980s affects the gap between administered prices and the external reference price. Exporting countries concerned about the degree to which these policies can distort markets might consider that this option also has the advantage of better capturing the degree to which support is associated with actual distortions on markets. A third potential advantage that might be seen as valuable by a wide cross-section of the membership is that such an approach could also provide a new basis for updating rules on agricultural domestic support—something that many members have long emphasized should be a priority.
  2. Revisiting the Definition of Eligible Production. Another key component of the calculation of domestic agricultural support is the question of how to define the quantity of production eligible to receive the applied administered price. Revisiting this concept could provide WTO members with pathways to resolve the problems faced by developing countries that are buying food at administered prices under their public stockholding programs.
  3. Exempting Support When Administered Prices Are Set Below International Prices. Many studies suggest exempting support under public stockholding programs from counting toward the aggregate measure of support (AMS) or de minimis limits when pre-announced administered prices are set below international market prices. The Agreement on Agriculture already specifies that procurement at market prices is not required to count toward AMS limits. However, if the government announces minimum prices in advance, this will normally need to be taken into account when governments notify their support to the WTO.
  4. Exempting LDCs and Other Small Economies. Members could consider exempting groups of WTO members from the requirement to count purchases at administered prices toward the AMS or agreeing not to challenge the compliance of their public stockholding programs through the dispute settlement process. Because procuring food at administered prices requires considerable financial resources if undertaken at scale, most LDCs seemingly lack the capacity to do so and do not appear to be at risk of breaching WTO commitment levels on the provision of trade-distorting support.
  5. Establishing a Permanent Solution Based to Some Degree on the Bali Decision. A February 2020 paper from the former chairman of the WTO agriculture negotiations suggested that a consensus outcome could most likely be based on some form of the Bali decision, under which WTO members would agree not to challenge the compliance of a developing country member with its obligations under the Agreement on Agriculture. He suggested that modifications to increase flexibilities in specific areas (such as product coverage) could be compensated with more rigorous requirements in other areas (such as safeguards to prevent circumvention of the agreement or transparency requirements).

The WTO’s upcoming 12th Ministerial Conference offers members the opportunity to find a long-lasting solution on public stockholding programs. The Bali decision to exempt public stockholding programs from legal challenge under certain conditions could be a constructive way forward, with some technical fixes. These fixes could include revisiting the calculation of eligible production or updating the methodology for establishing a fixed external reference price, which would have broader implications for calculating support under more general price support programs.

The Bali decision to exempt public stockholding programs from legal challenge under certain conditions could be a constructive way forward.

In addition, coverage could be broadened to include a wider group of eligible foodstuffs than traditional staple crops and limited extension to new programs. In doing so, necessary anticircumvention and safeguard provisions must be maintained, in addition to transparency provisions with such programs as part of the concerned members’ domestic support reporting requirements. However, transparency provisions should be facilitated by appropriate technical assistance and capacity building for developing and least developed countries.

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