Understanding the labyrinth that India calls a sugar policy can be tough – especially with new subsidy schemes announced on a near weekly basis – but we’ll give it a shot.
Each year, the Indian government mandates the price that sugar mills have to pay farmers for stalks of sugarcane that will be milled into raw sugar. And because sugar farmers are plentiful and politically powerful, that price for their cane crop is always pretty high.
Unfortunately for the mills, the price of the raw product plus their cost of production is often much, much higher than what they can actually sell the finished product for on the market.
So, the government steps in with subsidies to help the mills make good on their debts. So far this year, those measures have included:
- $90 million in WTO-illegal export subsidies from the federal government.
- $22 million in WTO-illegal export subsidies from a state-level government.
- $320 million in additional interest free loans to sugar mills and $140 million in tax debt forgiveness from a state-level government.
- A doubling of import taxes to block foreign sugar.
- Elimination of excise tax on ethanol to promote sugar-based fuels.
Despite the government’s multiple bailout packages over the last 4 months, mills still owe $3.2 billion to the farmers, and they are demanding additional government action to clear the arrears.
Mills have suggested more WTO-illegal export subsidies, direct government checks to farmers to ease mill debt, and the creation of a government stockpile program to remove surplus and raise domestic prices.
Based on India’s past actions, it will only be a matter of time before these new programs or some massive debt forgiveness package is announced. Don’t forget, in addition to loads of other subsidies, India’s government forgave $11.4 billion and $5.6 billion in overall agricultural debt in 2008 and 2014 respectively.
No wonder India’s sugar farmers are so confident that they’ll be taken care of, which has become part of the problem.
“Cane is just like a hen that lays golden eggs,” Dhanbir Shastri, a local sugar farmer recently toldBloomberg News. “We are sure that arrears will be cleared with government help.”
That is why Shastri and other farmers maintained near record plantings in 2015, adding to the sugar glut overhanging India and applying further downward pressure to already low global prices.
So how does the global sugar community go about fixing this mess?
It is obvious that additional subsidies will not fix a world market that has been wrecked by subsidies and threatens U.S. producers.
Instead, America’s sugar industry believes the elimination of worldwide subsidies and government market manipulation is the key.
Under this Zero-for-Zero proposal, all subsidies would be eliminated and prices would naturally reflect production costs, enabling efficient U.S. farmers to succeed.
That’s how a free market is supposed to work.