Tensions among subsidized sugar exporters are mounting, and U.S. sugar producers are saying, “It’s about time.”
For far too many years, big sugar exporters around the globe have been embroiled in a subsidy arms race by one-upping each other with egregious handouts. But now, the biggest producer and a major subsidizer itself, Brazil, has had enough as prices reach ludicrously low levels.
Brazil blames India’s overproduction for the recent price freefall, and they have a compelling argument.
Driven by pervasive government support, India’s sugar production has bounced back from a disappointing 2017 crop in stunning fashion. Indian sugar production this year is expected be record high – 52% higher than just two years ago – and match or surpass Brazil’s world-leading 34 million metric tons.
The sugar industry in Brazil is urging its government to file suit against India in the World Trade Organization over a $760 million subsidy package aimed at incentivizing the export of 5 million metric tons of sugar.
That’s not all. In its march to become the world’s biggest sugar producer and build political support for the country’s prime minister, India has announced a slew of new programs ranging from producer payments to transportation aid. And that’s on top of the $1.7 billion subsidy program and excessive debt forgiveness packages that have punctuated its industry in recent years.
Brazil is courting help in its quest to end Indian subsidies, too. Another big sugar subsidizer, Thailand, and other sugar exporters are joining the fight as part of the Global Sugar Alliance.
“If the subsidy is not repelled, terrible economic and social consequences will be felt by sugar-producing countries around the world,” explained Greg Beashel, the Global Sugar Alliance’s chairman.
America doesn’t dole out subsidy checks to prop up its producers, and instead has a WTO-compliant, no-cost sugar policy based on government-backed loans that are repaid with interest. America also doesn’t export sugar. So, while we are not directly affected by India, we are concerned about the subsidy-driven chronic depression of the world market.
That’s why U.S. sugar producers hope Brazil and its allies are successful in ripping apart India’s complex web of government supports. After all, India is clearly breaking international trade law.
In response, perhaps India could dig into government supports in Brazil, too, which has used roughly $2.5 billion in sugar subsidies a year to gain a stranglehold over the world sugar market. Thailand and its $1.3 billion in subsidies might be another target.
The world sugar market is awash in subsidies, and not surprisingly, it’s awash in so much surplus sugar that prices today don’t even cover half the cost of producing sugar.
The global sugar market is so screwed up that America’s top agriculture trade negotiator recently made this observation: “I can’t think of a commodity that is more distorted … If you think there’s a problem in steel, take a look at the sugar market.”
The only way to dry up the global glut of sugar and return prices to true market-based principles is to dry up the subsidies that wrecked the market in the first place. That’s the thinking behind the Zero-for-Zero sugar policy that U.S. producers have championed for years.
No subsidies. No trade-distorting policies. Just producers competing on a level playing field, as it should be.