External reference price
Also called: Fixed external reference price, FERP · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
The external reference price is the fixed world price used to calculate market price support under the WTO Agreement on Agriculture:
MPS = (Applied Administered Price − External Reference Price) × Eligible Production
It is fixed at 1986–88 world prices and never adjusted for inflation. So even a modest minimum support price (MSP) today looks like a very large subsidy against that old benchmark. This inflates developing countries' measured support.
Example
India buys rice at MSP for the public distribution system. Measured against the 1986–88 price, India's support for rice has gone above the 10% de minimis limit in some years. India therefore invoked the peace clause for rice for 2018-19, the first country to do so.
Don't confuse with
- Effective rate of protection (also abbreviated ERP): this measures how much tariffs raise an industry's value added. It is a tariff concept and has nothing to do with farm-support calculations.
Related concepts
- Amber Box
- Aggregate measurement of support
- De minimis
- Blue Box
- Green Box
- Development Box
- Public stockholding for food security
- Peace clause
- Special safeguard mechanism