Public Stockholding for Food Security Purposes, Scenarios and Options for a Permanent Solution
International Center for Trade and Sustainable Development (ICTSD)
Since 2008, reducing price hyper-volatility and addressing food insecurity have become priorities for the international community and food stocks a strategic variable. Some countries have adopted programs aimed at creating public food stocks; however the WTO considers these as trade barriers.
So how should we adapt to the new challenges faced by global agriculture? What type of agricultural and food policy should be implemented to resolve these issues whilst remaining in line with the rules that support international trade?
We recommend reading this excerpt from a recent report by the ICTSD1, which offers different scenarios for adopting more flexible rules for setting up WTO “green box” public food stocks – i.e. those exempt from any caps or any reduction obligations because they do not cause distortion, and thus prevent AMS2 from exceeding de minimis levels.
If the report comes to the conclusion that there are several options available to countries, particularly developing countries, aimed at continuing domestic support for agriculture whilst remaining WTO compatible; they are complex to implement and are far from being permanent solutions. From reading an article that we also published this week on E.U. notifications to the WTO, it is especially clear that it is WTO assumptions and methodologies that must first be examined.
momagri Editorial Board
In the run up to the Bali Ministering Meeting in December 2013, various proposals were presented the resolve the predicament of some developing countries who were at risk of violating WTO rules on domestic support because of their public stockholding programs which provide market price support to domestic producers. In Bali, WTO ministers decided to temporarily shield such programs from challenges until a “permanent” solution was worked out. This study seeks to provide policy makers, negotiators and other stakeholders with an impartial, evidence-based analysis of policy options for such a “permanent solution”.
Under the WTO Agreement on Agriculture (AoA), the distortive effect of market price support programs can be quantified into a product-specific Aggregate Measurement of Support or AMS. This is equal to the difference between a fixed external reference price and an applied administered price multiplied by the quantity of the product that is eligible to receive the administered price.
The resultant AMS figure must not exceed the de minimis for such product, which is a prescribed percentage of the value of annual production of the said product.
Because the external reference prices were based on import prices during a distant base period (usually 1986-88), their variance from current administered or buying prices has increased significantly over time and now risks placing some countries in breach of their de minimis. Several proposals have been raised to address this problem. This study simulates the effect of some of these proposals on the behavior of AMS and the capacity of countries to comply with AoA rules on domestic support.
The simulations covered five developing countries with existing public stockholding programs that provide price support to producers. Only food staples, particularly wheat and rice, were included in the analysis. Relevant data on import prices, administered prices, production volumes and values, foreign exchange rates and other information were culled from the FAO Statistical Database and submissions of countries to the WTO.
The simulations confirm apprehensions that a literal and strict application of the AMS formula for market support price programs could lead most of the developing countries covered by the study to breach their de minimis allowances for product-specific AMS. Only one country was able to consistently comply with the de minimis rule despite agreeing to a lower threshold (8.5% of total production value versus 10% for the others) mainly because its administered prices were significantly lower than its reference prices.
Adjusting reference prices alone had mixed results. The use of 3-year rolling averages of import prices produced the most positive outcome although one country remained in breach of its de minimis cap primarily because of the unusually large gap between its reference and administered prices for rice. Adjusting reference prices for inflation, whether by using producer price indices or converting prices and monetary values to US dollars, also had generally positive effects but were not sufficient to allow two of the five countries to comply with the de minimis rule for their rice products.
Setting “eligible” production to actual procurement volume worked in favor of countries whose public stockholding programs covered only a small proportion of local output. Three of the five countries which absorbed less than 5% of local production fared best in this scenario. In turn, the two other countries which purchased about one-fourth of local wheat produce exceeded their AMS caps.
The only scenarios where all countries and commodities registered AMS within their de minimis was when “eligible” production was equated to actual procurement volume and reference prices were adjusted simultaneously either by applying producer price indices, or converting prices to US dollars or using 3-year or 5-year rolling average prices of imports.
In terms of crafting a “permanent solution”, an Appellate Body ruling in a dispute involving Korea beef opened the possibility for countries to officially set a limit to the scope of their price support programs, and on this basis, legally declare their “eligible” production to a certain portion or percentage of local production. The simulations show that this option, which will not require any change in AoA rules, could even allow countries to increase their current procurement levels without breaching their de minimis caps.
If this option is not able to adequately address the concerns of some countries, the least contentious alternative would be to allow the use of US dollars in notifying prices and monetary values in AMS calculations and to equate “eligible” production only to the proportion of local output that is actually marketed by producers. These two adjustments will not sufficiently resolve the problems of three countries but it will at least bring one country’s support program, which was in breach in the base scenario, in compliance with de minimis rules.
Another possible area of compromise would be to exempt developing countries from de minimis caps if their actual procurement does not exceed a given percentage of local production. This will address the concerns of the countries whose procurement programs are small and arguably contribute little to market distortions.
Rebasing reference prices to a more recent period, or adjusting them for inflation through the use of producer price indices, or replacing them with 3-year or 5-year Olympic averages of historical import prices may be difficult to pursue since they run counter to the “fixed” nature of reference prices. In turn, increasing de minimis levels had minimal effects and will conceivably provide only temporary relief from breaches.
Aside from adjusting the AMS formula, developing countries have the option to convert their buying programs to green box measures by removing administered prices altogether. Developing countries can replace these with practically unlimited amounts of input subsidies for as long as these are extended to low-income or resource-poor farmers. Using budgetary outlays as proxies for AMS through the EMS modality could be another option that could resolve the dilemma.
The study concludes that the public stockholding issue is solvable and that developing countries have many options, both within and outside the AMS formula, to continue providing support to their farmers. At the same time, the pursuit of a “permanent” solution to the public stockholding issue should be viewed in the light of calls of many developing countries to rectify many existing imbalances in the domestic support allowances accorded to developed vis-a-vis most developing countries. Care should nevertheless be exercised so that such programs do not end up unduly distorting markets and even harming other developing countries.
1 The full report is available from
2 The Aggregate Measure of Support (AMS)