WTO looking into Australia’s allegation against India over sugar subsidies

The Agriculture Committee of the World Trade Organization (WTO) is looking into Australia’s allegation against India over sugar subsidies. Australia feels that such subsidies have caused significant decline in global sugar prices and were hurting its mills.

According to documents made available to the committee, Australia has communicated that it has a significant interest in ensuring a transparent and predictable global trading system, underpinned by a shared understanding of members’ obligations under WTO rules. “Under Article 18.7 of the Agreement on Agriculture (AoA), we seek further clarification from India on its domestic sugarcane and sugar policies. Historically, as the world’s second largest sugar producer and fourth largest exporter, dynamics in India’s sugar market have significant implications for both prices and trade in the global market,” it said.

Australia has already made it clear that it is ready to “engage in discussions with India and other members regarding the significance of India’s MSP (Minimum Support Price) and resulting AMS (Aggregate Measure of Support) for sugarcane, as well as the other trade distorting measures to facilitate sugar exports, and their impact on global sugar markets.”

India is estimated to produce nearly 315 lakh tonnes of sugar during 2018-19, though Australia claimed that it will become the world’s largest sugar producer in 2018-19 with approximately 340 lakh tonnes. It alleged that though cost of production is very high ($291 a tonne higher than Australia’s), there are export subsidies of nearly $150 a tonne.

Australia produced 42 lakh tonnes of sugar in 2017, out of which 37 lakh tonnes were exported (mainly to South Korea, Japan and Indonesia). It is the third largest exporter. It has very low costs of production and it is price taken in competitive global market. The Government did not provide any subsidy either to farmers or to the sugar mills. India has over 50,000 sugarcane farmers as against just 5,000 in Australia.

Australia alleges that the subsidies helped sugar production to surge in India and far exceeded the level of farmer assistance permitted under WTO rules. It uses the mechanism of compliant which is known as counter notification (CN) that demonstrates that the FRP (Fair and Remunerative Prices) ‘provide assistance well in excess of entitlement under the WTO Agreement on Agriculture.’ Against 10 per cent permissible, between 2011-12 and 2016-17, on average 90 per cent of the value of cane production was subsidised..

Future discussions between the two Governments and industry will focus on six issues. These include removal of 2018-19 MIEQ (minimum indicative export quota) of 50 lakh tonnes, bringing export subsidies into line with WTO entitlements and obligations, re-divert export subsidies to assist mills store the surplus sugar, reform of FRP and SAP (States’ Administered Prices) so that they are linked to domestic and export prices.

Every year India has a surplus; it draws out a subsidy programme, which means prices of export will come down. According to market sources, there has been 124 lakh tonnes of global oversupply since 2017 mainly due to Government policies and good weather. This resulted in bringing average raw sugar export price to US cents 12.65/lb as against US cents 14.5/lb in Australia.

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