With all of the excitement of the past month in the world of agriculture – including a secret attack on crop insurance, sugar policy’s bizarre mention in a presidential debate, anti-farmer forces angling to reopen the farm bill, and Thanksgiving – some important foreign subsidy news almost went unnoticed. Almost.
India recently announced that it has once again upped its subsidy game. According to a Nov. 18 Bloomberg report:
- India, the world’s biggest sugar producer after Brazil, will pay 11.47 billion rupees ($173 million) to subsidize part of the cane payments made to farmers…
The subsidy will be given directly to the farmers who supply cane to mills that will export sugar and produce ethanol, at least 80 percent of a government-set quota, [Minister Piyush Goyal] said.
India is seeking to clear sugar reserves that jumped 21 percent to 9.1 million metric tons on Oct. 1 after production outpaced demand for a fifth year and a slump in world prices slowed exports.
The Indian government claims that the new scheme will not distort the market, just as it claimed after announcing big increases to WTO-illegal export subsidies earlier this year. And again, India’s rationale is perplexing to say the least. Here’s how the Business Standard newspaper explained it:
- In a bold first of its kind move, the union cabinet on Wednesday approved a food ministry proposal wherein it decided to transfer [the subsidy] into the bank accounts of sugarcane farmers directly without any intermediary.,.
By transferring this subsidy directly into the bank account of sugarcane farmers and thereafter linking it with fulfillment of export obligation, the Centre seems to have addressed several issues in one go.
First and foremost, the subsidy would not attract WTO objections as it will be transferred directly into the bank accounts of farmers and hence would not be seen as trade distorting.
Trade experts are scratching their heads at this claim of WTO-consistency since this new program clearly seems just another form of export subsidy. But India has advanced even flimsier rationales for its previous program without serious challenge from other WTO members.
So India’s sugar industry must be thankful, right? Especially when you combine this new direct payment to farmers with lucrative export subsidies, $1 billion in interest-free loans that likely will never be repaid (India has forgiven $17 billion in loans since 2008), and the other market manipulating policies India has announced this year.
Not exactly. Indian sugar interests want more and have criticized the move for falling short. After all, it’s really hard for Indian producers to compete in a global market that is so distorted by subsidies.
Hopefully the rest of the world recognizes the irony of these criticisms. Passing more and more subsidies is not the answer to fixing a heavily subsidized market.
The answer is the Zero-for-Zero sugar policy where all global producers abide by WTO rules and agree to cease subsidization so that a true world market can form. That plan was eloquently described at a recent House Agriculture Committee hearing, and it is the only real free-market solution.