‘Solution for Food Security First, Other Agri Issues Later’

India Opposes Agriculture Package at WTO: Focus on Public Food Stockholding Rights

Source and Citation: Article published by ET Bureau in Economic Times on January 19, 2024.

Analysis for a Layman

India has taken a strong stance at the ongoing World Trade Organization (WTO) negotiations, asserting that it will not engage in discussions on any other agriculture-related issues until the longstanding matter of public stockholding rights for food security is resolved.

Public stockholding involves government purchases of grain from farmers at fixed minimum support prices (MSP) to maintain buffer stocks. This policy has been crucial for India’s food security system, facilitating distribution through schemes like the public distribution system.

However, the WTO’s outdated rules impose caps on such stockpile spending and volumes based on 1986-88 price benchmarks. As updated prices breach these old limits, India seeks corrections, arguing that these distorted methodologies unfairly restrict its food security priorities.

Developed nations, including the United States, have delayed addressing this matter for over a decade while pushing for discussions on other areas like agricultural subsidies where their interests align. India, supported by 90 WTO member countries, firmly opposes any package deal on agriculture without first resolving this critical issue.

‘Solution for Food Security First, Other Agri Issues Later’

Impact on Retail Investors

For retail investors, India’s strong stance at the WTO safeguards the interests of the agriculture sector and ensures income stability for millions of farmers benefiting from MSP cover secured through public stockholding rights.

Companies in the agriculture supply chain, such as fertilizer firms, farm equipment manufacturers, logistics providers, warehousing, cold storage operators, and agriculture commodity traders, stand to benefit from assured government procurement, which boosts farm incomes over the long term. This policy stability also encourages private sector investment in the agriculture sector.

The avoidance of potential adverse trade actions by developed countries against India’s non-compliance with WTO rules reduces regulatory hurdles for export-oriented agriculture companies. Overall, India’s negotiating strength signals the protection of food security and farm incomes, which should boost investor confidence.

Impact on Industries

The primary beneficiary of the public stockholding policy is India’s agriculture sector, comprising over 140 million farmers. Assured government buying provides income stability and financial security for crop planning, benefiting industries involved in farm inputs, such as fertilizer and equipment manufacturers.

The agriculture supply chain, including food processing, dairy, and poultry industries, remains robust, supporting multiplier growth and generating rural jobs. Stockpile releases during lean crop cycles contribute to food price stability, preventing spikes in staples’ costs and maintaining demand stability for consumer sectors like retail, textiles, and auto.

Globally, agricultural commodity traders need to consider India’s ability to strategically calibrate food export policies to its advantage during global crop shortfalls, without being overly constrained by WTO clauses.

Long Term Benefits & Negatives

Over a 20-30 year horizon, upholding public stockholding rights enables India to deploy stocks judiciously, regulating the availability and prices of essential food commodities. This strategy is essential given climate change-induced extreme weather events and the need for resilience against potential droughts and floods.

Population growth further underscores the necessity for a robust buffer pooling system to sustain food security, especially for economically weaker sections, amid the uncertainties of global commodity markets. However, potential negatives include the risk of crowding out private trade, excessive inventories, storage-related issues, and fiscal burdens associated with maintenance.

India’s stance seeking corrective formulas based on contemporary price benchmarks is justified, countering developed country demands to dismantle public stockholding through WTO clauses.

Short Term Benefits & Negatives

In the near term, with global prices of grains, edible oils, etc., still affected by the pandemic and geopolitical events, India safeguarding its rights to maintain public food reserves reduces vulnerability. Stockpile releases can help manage domestic inflation volatility.

Assured government buying at MSP prices incentivizes farmers to increase planting of essential crops, improving self-sufficiency amid global supply uncertainty. While this contributes to short-term food inflation management, domestic market prices may temporarily lag global trends.

However, sudden trade curbs can backfire, and excessive buffer buildup may compel export subsidies once global production normalizes. Storage costs could also accumulate, requiring a balanced approach to continued public procurement within the current WTO leeway.

Potential Impact of India’s Stand on Food Security at WTO on Companies:

Indian Companies that could gain:

  1. Foodgrain-based FMCGs:
    • Mahanagar Telephone Nigam Limited (MTNL): Larger government stocks could lead to price stabilization of wheat and rice, indirectly benefiting companies using these in processed foods like Britannia Industries or ITC.
    • KRBL Limited: A focus on public stockholding potentially indicates continued government procurement of rice, which may benefit major rice exporters like KRBL.
  2. Agrochemical Companies:
    • PI Industries Ltd.: Increased focus on domestic food production might boost demand for fertilizers and pesticides, benefiting companies like PI Industries.
    • Coromandel International: Similar to PI Industries, Coromandel could see higher demand for their agrochemical products due to potential government efforts to improve agricultural productivity.
  3. Cold Chain and Warehousing Companies:
    • Nestle India Ltd.: Improved food stockholding infrastructure may create opportunities for companies like Nestle India involved in cold chain logistics and storage.
    • National Agricultural Cooperative Marketing Federation of India (NAFED): As a government co-operative, NAFED could be entrusted with managing a larger part of the public food stocks, boosting its business.

Indian Companies that could lose:

  1. Export-oriented Agri-businesses:
    • Basmati rice exporters: India’s stance might delay a WTO deal on agriculture, potentially impacting export opportunities for companies like Kohinoor Foods Ltd. specializing in basmati rice exports.
  2. Companies relying on imported food products:
    • ITC Ltd.: Increased focus on domestic food security might raise import duties or restrictions on specific products, impacting companies like ITC importing edible oils or fruits.

Global Companies that could gain:

  1. Technology companies providing agricultural solutions:
    • Deere & Company (John Deere): Increased focus on Indian agriculture could create demand for advanced agricultural machinery and technology from companies like John Deere.
    • Bayer AG: Focus on improving productivity and food security might offer growth opportunities for Bayer’s seeds and crop protection products in the Indian market.

Global Companies that could lose:

  1. Large grain exporters:
    • Bunge Limited: If India prioritizes domestic food security and reduces exports, it could impact the business of major grain exporters like Bunge.
  2. Companies importing processed food products:
    • PepsiCo Inc.: Increased domestic food production and focus on self-sufficiency might restrict imported processed food products, potentially impacting companies like PepsiCo.

Note: These are potential impacts based on the provided information. Market sentiment is complex and influenced by various factors. Please consult financial professionals for specific investment advice.

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