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India criticised as government nears approval of sugar subsidy rise

Post a commentBy RJ Whitehead , 10-Feb-2014

Strong suggestions that India is about to announce an increase in sugar export subsidies have brought a wave of criticism from competing countries, who say that what India is doing is wrong and “distorts" the sugar trade.

News reports over the weekend claim that the Indian government will announce a subsidy of Rs3,500 (US$56.25) per tonne on the export of 4m tonnes of raw sugar at a cost of Rs1,400cr (US$225m). The move is intended to increase sales overseas while bailing out the cash-strapped industry. 

Sharad Pawar, the powerful agriculture minister, has supported implementing a higher subsidy while the Cabinet Committee on Economic Affairs, pushed by the finance and food ministries to implement a lower-price subsidy, has deferred its decision several times. 

On Friday, Pawar met with food minister KV Thomas and finance minister P Chindambaram to resolve the issue, and agreed on a new subsidy price, which will now be taken to the CCEA for approval.

Government support

This would be the latest in a line of measures to support the sugar industry in India—the second-biggest producer in the world. Most recently, in December, the government approved Rs6,600cr (US$1bn) interest-free loan to the sugar industry to pay its sugarcane farmers. Over the last two years, global sugar prices have dropped about 50%.

However, the Brazilian Sugarcane Industry Association (Unica) has expressed grave concerns over the move, if approved. India already spends US$120m on subsidies, according to Unica, a practice it believes is considered illegal by the World Trade Organisation.

Unica President Elizabeth Farina sees subsidies as having a negative impact on global commerce, such as distorting international markets, artificially forcing down prices, and punishing exporters who don't resort to similar practices. "India, however, has been making use of sugar export subsidies for several years, further distorting the global sugar trade," she said.

India alone

"By subsidising exports, India reduces its domestic sugar stocks and helps local producers by propping up internal prices above global levels. But that forces sugar producers in countries like Thailand, Australia, Colombia, Guatemala and Brazil to reduce their own output and adjust exports in future harvests, or face even deeper losses because of depressed prices.”

India is the only developing country in the world to adopt sugar export subsidies, which runs counter to positions usually defended by emerging countries that are consistently against such practices.

Brazil is currently the world's number-one sugar exporter, and accounts for about 50% of all the sugar traded around the globe.

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