India’s sugar export subsidy is probably illegal under World Trade Organization rules, but that hasn’t stopped the country from – once again – making adjustments to it. And surprise, surprise, the adjustment will send the subsidy higher, not lower.
In late January, India’s food minister signed off on an export subsidy rate of 4,000 rupees ($64) per ton of raw sugar. That’s up from a subsidy of 3,300 ($53) rupees per ton, which was set in February of 2014 and then promptly increased to 3,371 ($54) rupees in August.
India exported 2.8 million tons of sugar last year with the aid of this subsidy, and this year, the Indian sugar lobby says it will need to offload about 2 million tons to keep domestic prices high.
According to recent press reports, details of the 2015 export scheme are still being finalized, though officials have signaled that they will allow the subsidy to be used for 1.4 million tons of exports.
That equals $91 million, and if the government caves to industry pressure and allows all 2 million tons to be subsidized, it will work out to be a sweet $130 million windfall for India’s sugar producers.
Not too shabby considering the Indian government also blocks competitive imports with tariffs, sets high domestic prices, controls supply, and offers up other goodies like coupling preferential loans and debt forgiveness.
No wonder the world sugar market is an absolute mess right now and is prone to volatile price swings.
The time has come for India, and all countries, to stop this massive buildup of subsidies. Letting a free market form where the most efficient producers thrive is in everyone’s best interest, which is why American growers back the zero-for-zero sugar policy.