India is all set to be challenged by Australia at the WTO over its support to sugarcane farmers

• At the World Trade Organisation’s (WTO) Committee on Agriculture meeting later this month, Australia is all set to raise the issue of India’s sugar production subsidies.
  
• India’s sugarcane farmers are expected to produce 35.5 million tonnes of sugar between October 2018 and September 2019. This is well over domestic demand, and hence as India exports the surplus stocks, global prices will decline.
  
• India has tried to curb the problem of overproduction by incentivising the production of ethanol, but the initiative is still in the early stages.
  

As the US clashes with India over the latter’s agricultural subsidies, India is all set to be hit with a fresh challenge over its subsidies to local sugar producers — this time from Australia.

At the World Trade Organisation’s (WTO) Committee on Agriculture meeting later this month, Australia is all set to raise the issue of India’s sugar production subsidies, according to ABC News, complaining that these distort the global market for sugar by lowering prices and increasing supply significantly.

To this effect, it has issued a counter-notification against India -- the first step required to compel a WTO member to cut subsidies, wherein the complainant explains the nature of the subsidy and subsequent market distortion.

India’s astonishing rate of sugar production is well-documented. Given that they are assured of a government-set fixed price from sugar mills that helps them exceed their costs, India’s sugarcane farmers are expected to produce 35.5 million tonnes of sugar between October 2018 and September 2019, according to the Indian Sugar Mills Association. As a result, India will overtake Brazil as the world’s largest sugar producer.

However, this isn’t something to be celebrated. India needs to do a better job at converting excess stocks of sugarcane to ethanol. Otherwise, it risks flooding the global market with excess sugar, since annual domestic demand is only about 25 million tonnes, depressing prices even further.

That is largely where Australia’s complaints emanate from. The low global prices of sugar have hurt its sugarcane farmers falling well below their costs of production. In addition, more sugarcane importers are expected to choose India’s sugarcane over other countries like Australia and Brazil because of the cheaper prices.

Meanwhile, India’s sugarcane mills are also struggling with low sugar prices, which has resulted in a huge build-up of arrears to sugarcane farmers. That has led to a bailout package for the sector from the Indian government, as well as the scrapping of export duties and levying of import duties to keep domestic produce competitive.

For its part, India has tried to curb the problem of overproduction by incentivising ethanol production, but it will be a while before the initiative takes effect. In September, it increased the price of ethanol produced from B-heavy molasses of sugarcane by 25% in order to make its production financially viable. As part of a financial rescue plan in June, the country also offered a loan package worth ₹44.4 billion to producers to undertake the production of ethanol.

SEE ALSO:

India could soon become the world’s largest sugar producer but here’s why that’s a problem

India is curbing its sugar surplus by incentivising ethanol production

America doesn’t like India’s farmer subsidies and that’s unlikely to change anytime soon