In February, the American Sugar Alliance unveiled a new online resource that tracks foreign sugar subsidies as part of its campaign for a free global sugar market.
Since that time, the catalogue of media stories has been filled with news of an oversupplied world market where prices are far below average production costs.
Fueling the glut and sour price environment is the collapse of the Brazilian real and the immediate rise in subsidies by competing countries hoping not to be shut out of the market by Brazil’s currency advantage.
According to a March 18 Bloomberg story:
The world has never been so awash in sugar.
Just as cane harvests expand in India and Thailand, farmers in Brazil, the world’s largest producer, are ramping up exports to take advantage of a tumble in the exchange rate that has swelled their profit margins…
Global output is set to exceed demand for a fifth straight year, leaving the biggest stockpiles on record, the International Sugar Organization said.
All of that sugar signals global prices, already down 50 percent in three years, are poised to fall further…
The Wall Street Journal also reported on the situation:
Sugar prices are down more than 30% since last summer, currently trading a shade below 13 cents a pound on the ICE Futures U.S. exchange.
Brazil’s producers have been shielded somewhat from the price slump by the real’s slide—the Brazilian currency is trading near 11-year lows against the greenback. Sugar is priced in dollars internationally, so Brazilian producers, whose costs are mostly in reals, can afford to cut their export prices.
Both the Indian rupee and the Thai baht have held their ground relatively well against a strengthening U.S. dollar. That makes it harder for producers in those countries to cut their selling prices, making them less able to compete overseas…
Indian sugar refiners’ profits have already eroded. Large stocks at home have pummeled domestic prices, but refiners still have to pay cane prices set by the government, which are relatively high.
The Indian government has offered some limited subsidies for the production and export of raw sugar. But the real’s fall is making it hard to compete internationally.
And make no mistake, India is attempting to subsidize its way out of this mess.
In February India’s federal government increased a generous subsidy first passed in 2014 to facilitate exports of raw sugar. Then, the largest sugar-producing region in India immediately passed anadditional export subsidy on raw sugar.
But it hasn’t been enough to overcome the OPEC of sugar (otherwise known as Brazil).
“As excess supplies continue to weigh on global sugar prices, the raw sugar subsidy announced by the government in mid-February this year has not helped millers or farmers, as exporters find it difficult to ship out the commodity,” The Hindu, a large news outlet in India, noted on April 2.
That’s why the news outlet also reported that India’s sugar industry is lobbying for new bailouts including export subsidies for refined sugar, debt restructuring, and a government-held buffer stock of excess sugar to artificially raise prices.
The world sugar market is clearly in turmoil right now because of decades of government interference by big exporters, and more government interference cannot be the solution.
Instead, the American Sugar Alliance is backing a global Zero-for-Zero sugar policy where governments take a step back, let a true free market form, and businesses compete without subsidization.