WTO spotlight on MSP, export bans
Preparations for the 14th WTO Ministerial Conference in 2026 are in full swing. As India's agriculture minister Shivraj Singh Chouhan charts a roadmap, we propose addressing key agricultural issues in the ongoing WTO negotiations.
India faces challenges at the WTO in defending its public stockholdings (PSH) and export restrictions on vital food crops like rice. These issues took centre stage at a recent WTO workshop in Geneva, where global participants, including Shweta Saini, noted the lack of awareness about India's buffer stocks and minimum support price (MSP) regime, as well as concerns over recent trade policy changes on rice and wheat.
Here, we discuss India's unique challenges, the need for MSP and buffer stocking, and suggest areas for improvement.
PSH and MSP-based procurement
The PSH issue has been a topic of debate for years, particularly since introduction of the 'peace clause' at the 2013 WTO Bali meeting.
India runs the world's largest food-based welfare program through its Public Distribution System (PDS), where the government procures grains at MSP for distribution. WTO views output price support like MSP as market distortions. While the PDS itself is not contentious, procurement at MSP, which might be in some years higher than the ruling market price, is a concern for WTO.
But India’s MSP system has limitations, which can address this issue of WTO members:
Not everyone benefits from MSP: MSP is declared for 23 crops, but only sugarcane is legally required to be purchased at the government-declared price (FRP). Only 9% of India’s 9.3 crore farmers reported selling at MSP in 2018-2019, and 75% of these were small and marginal farmers.
Prices Below MSP: Farmgate prices for many MSP-declared crops, including rice and wheat, often fall below MSP. Besides, after accounting for logistical costs, bardana, labour charges, etc., the actual realisation for farmers is even lower than MSP, even for those benefiting under the regime.
India’s frequent export bans and restrictions
In the last two years, India banned or restricted exports of several crops including rice and wheat, causing issues with WTO members who argued these actions worsen food insecurity in importing countries. Members noted India's inconsistency, as it previously opposed Indonesia's palm oil export restrictions.
While ad-hoc export restrictions do impact global food security and even disrupt domestic export value chains, the primary concern is domestic food inflation and food security. Rice and wheat are staples for Indians, and recent heatwaves and erratic monsoons have hurt production, leading to a supply crunch and rising prices. With retail food inflation averaging 7%, and 43% of household budgets still spent on food (NSSO 2022-23), policymakers must prioritise domestic consumers. Additionally, if India becomes a wheat importer, it could significantly impact global food prices and food security.
Indian farmers are net taxed by policies
Indian farmers are effectively net taxed by policies. Using the OECD's standard methodology to estimate Producer Support Estimates (PSE) for 54 countries, including India, we found that in 2022, India's PSE was (-)20.2% (below). This indicates that despite large input subsidies and price support, trade restrictions, among other things, reduce farmers' actual price realisation. In contrast, richer nations provide significant positive support to their farmers, making demands by the developed world for India to reduce farmer support, seem unreasonable.
Meanwhile, India may consider the following:
Export Restrictions — Transparency and shorter durations for such restrictions are crucial for both importers and exporters. Predictable and stable policies are vital.
Cropping decisions — The current MSP regime has led to skewed cropping patterns, with paddy grown in unsuitable areas and water-intensive crops like sugarcane in drought-prone regions. Encouraging diversification to less water-intensive crops such as pulses and maize is essential.
PDS/NFSA Rethink — With India's poverty rate estimated at 8.9% for 2022-2024, re-evaluation of the PDS, which currently distributes free rations to 67% of the population, is necessary. Targeting the scheme more effectively could improve efficiency.
Increasing Crop Yields — Higher crop yields can address many challenges, including many discussed here. Sustainable production can facilitate smoother exports and ensure food security. Investments in seeds, technologies, and techniques are necessary to counter climate-induced variations.
The government’s grain stocks, procured under the MSP system, have been crucial in preventing food crises, including during Covid-19. In the past two years, wheat releases from the central pool have effectively mitigated supply shocks caused by adverse weather and climate conditions. Both MSP and PSH remain crucial for India, especially given the uncertain impacts of climate change on staple crops like rice and wheat.
(Shweta Saini is an agricultural economist and CEO, Arcus Policy Research, and Siraj Hussain is former Union Agriculture Secretary. Views expressed are personal.)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.