Sugar industry lobby groups from Australia and Brazil have teamed up with the backing of their governments to fight against attempts by India to implement a subsidy on its sugar exports.
The threat of a formal complaint to the World Trade Organization (WTO) shows just how seriously Australia and Brazil are taking this issue. Both countries rely on sugar production as a significant chunk of their GDP.
Eduardo Leao, Executive Director for Unica, the sugar cane industry lobby for Brazil, said that Brazil and Australia both view this move by India as a threat to their own growers that would pose a serious risk to the recent growth seen in the sector, which has allowed the price of sugar to climb for farmers.
Leao told Reuters on Tuesday evening that a WTO response is necessary to counteract any move by India and added that a sugar subsidy would cause an uneven playing field.
Due to unexpectedly large crop yields this year, India has been looking for ways to supplement the market with a bumper local crop. Similar yields should occur in the coming year, and many analysts believe that the only suitable response from India’s perspective is to find a way to float an export subsidy on the market globally to avoid stunting its own growth and price for farmers.
Leao said that such news “is not admissible” as he looked to downplay fears that farmers in his home country would struggle to match the prices that a saturated market would create if demand drops.
The sugar market has struggled to grow in recent years, dampened in part by a large surplus. An additional influx from India with financial incentives from its government would only add fuel to the fire in this respect, so other countries whose farmers would suffer as a result are looking to take action.
Sugar prices have also seen the effects of short selling recently, although the value of New York raw cane has risen above its recent slump to 9.91 US cents toward the end of August.
Indian officials said that they see no issue with the country’s approach and that it would not flout WTO rules. They cited the fact that India is providing a subsidy for its farmers to produce sugar cane and is making no attempt to pay its farmers to put sugar on the overseas markets.
Leao confirmed that Brazil and Australia are talking to the Australian Sugar Milling Council about a joint response to the WTO and said that even though a “coincidence of large productions in Europe, Thailand and India” had caused the market to drop, it has since stabilized. Leao, therefore, considers it unnecessary for India to introduce an incentives subsidy to its sugar growers.
With a sugar surplus of 10 million tons, India needs to find a solution to not waste a large bounty of crop, but it must negotiate with unhappy WTO members who would struggle to benefit in the same way at present.
India plans to use the additional export funds to regenerate its sugar mills. Leao is sympathetic to this plight and said that the Brazilian government would welcome plans to help improve India’s mills if the country can avoid needing a subsidy for funding.