Govt. Handouts Total $1.7 Billion a Year and Distort Global Prices
From the International Sweetener Symposium:
Coeur d’Alene, Idaho — A new report released today at the International Sweetener Symposium details the estimated $1.7 billion in annual subsidies propping up India’s inefficient sugar industry.
The study’s author, Antoine Meriot of Sugar Expertise, LLC, spent months corresponding with industry and government officials in India to better understand how the world’s second biggest sugar producing country structures its intricate web of subsidies and policies.
At the heart of India’s subsidy system are government-mandated prices for sugarcane. These prices, which are paid to farmers by the sugar mills that process the cane, are much higher than elsewhere.
For example, India’s farmers received $42 per metric ton of cane in 2014, compared to the $31 seen by U.S. farmers. These artificially high prices equated to a $1.598 billion subsidy in 2014 and $1.125 billion in 2015, according to Meriot, compared with the market-oriented approach favored by Indian sugar policy reformers.
To help offset inflated prices, the government gives sugar mills soft loans, which “have provided interest forgiveness for a total amount of about $440 million over the last nine years,” he wrote.
Additional supports identified by Meriot include: $62 million in export subsidies in the past two years; $134 million from 2007 to 2015 to build and maintain buffer stocks; $173 million budgeted this year to help reduce surpluses; import duties at 40 percent; and $831 million in interest-free loans since 2008 to modernize mills, fund research, and support energy production from sugar.
Without so much government support, Meriot explained that India’s sugar industry would not have been able to transform itself from a net importer to a major exporter over the past five years given the small size of its farms and mills, low yields, and high production costs.
India’s massive handouts have kept inefficient producers in business, encouraged overproduction, and helped distort global prices.
“The Indian sugar policy generates a vicious cycle of expenditures but the [government] will not hesitate to intervene and support its industry if necessary, even if it involves costly subsidies and controversial export support,” he concluded.