India to wind up sugar export subsidy under pressure

Written by ASHOK B SHARMA | New Delhi, Feb 26 | Updated: Feb 27 2008, 02:18am hrs
India, succumbing to the pressures from Australia and Thailand, has decided to wind up its subsidy on sugar exports.

The subsidy programme of the government on inland movement of sugar to the ports for exports will be terminated on September 31, this year. The government has been compensating inland movement in coastal areas to the extent of Rs 1,350 a tonne and Rs 1,450 a tonne for movement of sugar for exports by mills located in the interior. Earlier on October 9, 2007 the Cabinet Committee on Economic Affairs (CCEA) had decided to extend this subsidy programme to April 1. 2009.

World's two major exporters, Australia and Thailand, had threatened to drag India to the WTO dispute settlement body on the issue of sugar export subsidy.

The Union food and agriculture minister, Sharad Pawar on Tuesday convened a meeting of the sugar industry and told them that the government can no longer support their exports beyond September 31, 2008. The minister when contacted said : "We are facing some problems regarding our sugar export subsidy in the WTO. I think beyond September 31, 2008, our sugar industry will not need any assistance as the global prices are gradually appreciating."

The director-general of Indian Sugar Mills Association (ISMA), SL Jain, however, alleged that both Australia and Thailand were guilty of subsidizing their sugar sector. Thailand has set up Cane and Sugar Fund (CSF) and according to records 20,286 million baht had been disbursed to cane growers as interest free long-term loan in the 1998-2004. Most of the loan has not yet been recovered, which practically amounts to making "direct payments." Even till date, despite no recovery, CSF continues to extend loan. The then deputy secretary general of Thai Cane and Sugar Board, Nattaphon Nattasomboon at the 10th Asia International Sugar Conference in May 2004 in Kaula Lampur in Malaysia had admitted that the outstanding loan amount was 15,598 million bhat. The loan was extended to growers to keep them in cultivation as they were severely affected due to low prices for both sugar and cane, he said.

Australia is guilty of veiled subsidization. It may be noted in the context that Australia and Thailand which are guilty of veiled subsidization had successfully challenged EU's cross subsidization of sugar sector alongwith Brazil. Australia exports about 95% of its sugar and Queensland produces 95% of the sugar produced in the country. The Queensland Sugar Ltd has monopoly rights over procurement of raw sugar from growers for export, a measure which is contrary to the WTO provisions.

Although the applied tariffs on raw and refined sugar in Australia have been scaled down to zero since 1997, domestic prices of refined sugar are regulated through a complicated internal mechanism of distribution thereby discouraging imports. Australia has introduced support regimes like emergency income support, interest rate subsidy and outright grants. About 444 million Australian dollar assistance was approved by the federal and state governments on April 28, 2004 under Sugar Reform Bill.

The Australian support package programme includes, sustainability grant to growers and millers (Aus $ 146 million), re-establishment grant to producers who wish to leave the industry (Aus $ 96 million), grower restructuring grant (Aus $ 40 million), income support (Aus $ 21 million), business planning for growers, harvesters and mills (Aus $ 15.5 million), re-training (Aus 7 million), inter-generational transfers (Aus $23 million) and regional and community development projects (Aus $ 75 million).

Funding was initially designed for a 3-year period and some of the components of programme have been completed. The regional community and development projects are slated to continue till June, 2008. This is designed to fund development of food grade low glycernic index sugar and molasses extracts, establishment of a sugarcane mulching facility and improvement of cane transport and management systems.