India may extend sugar export subsidies for select states

Arrears have come down significantly, but global supplies remain high and prices are down

Sachin Manawaria | @TheDollarBiz India-Sugar-The-Dollar-Business There are indications that the Indian government may continue and increase the sugar export subsidy scheme in this sugar season (October – September) in some states like Uttar Pradesh, where millers have still not paid farmers for the last season. In an event last week, Ram Vilas Paswan, Food Minister, said that the government has not taken any decision on the renewal of the export subsidy scheme after it lapsed in September 2014. He added that the situation has improved but the government continues to monitor it closely and will appeal to millers to clear the remaining arrears closely. Sugar is an essential commodity under the Essential Commodities Act, 1955, in India and international prices have a direct impact on the domestic sector. Earlier this year, the Ministry of Food said that the government had taken several measures to facilitate payment of arrears to farmers which includes increase in import duty on raw sugar from 15% to 25%, and incentives for the export of raw sugar at the rate of Rs. 3,300 per tonne for June-July, 2014 and Rs. 3,371 per tonne for August - September, 2014. The government has allocated around Rs.6,094 crore to help sugar farmers under the scheme. According to the Food Ministry, sugarcane arrears have declined to Rs. 7,760 crore (as on September 4, 2014) from around Rs.14,000 crore (as on May 31, 2014). So far, India has exported around 700,000 tonnes of raw sugar under the export subsidy scheme in MY2013-14. However, production and international prices may force the government to extend the scheme this year. India is the world’s second largest sugar producer and sugar production in the country is expected to increase to around 25 million tonnes, which is above the domestic requirement of around 24.5 million tonnes, and up 2% from around 24.5 million tonnes produced in the previous year. However, Indian Sugar Mills Association (Isma) says that sugar production in India could be higher at around 25.5 million tonnes this year. Meanwhile, international prices are declining steadily due to high supplies. Average international prices of raw sugar stood at around $322 per tonne in September, which is down around 16% from around $385 per tonne in May 2014. Sugar millers say that low prices and high stocks are likely to make things worse for them and farmers if the export subsidy scheme is discontinued. Satyajit Japtap, General Manager of Baramati Agro Ltd, told The Dollar Business that instead of discontinuing the scheme, the sugar export subsidy by the government should rather increase given the widening gap between the domestic and the international prices of sugar.” He added that most of the cane arrears of Maharashtra farmers have been cleared by the mill owners and only some arrears remain in the three states of Uttar Pradesh, Tamil Nadu and Karnataka. Earlier this year, some World Trade Organisation (WTO) members, including Brazil (world largest sugar producer), Colombia, Australia and EU, objected to India’s export subsidy scheme. India said that the policy is designed to encourage diversification away from white sugar to raw sugar and is within policy framework of WTO’s norms for developing countries. However, this time, the government is likely to tweak its intervention and provide support in states such as Uttar Pradesh, which is India’s largest sugar producing state, and where arrears still stand at around Rs.1,600 crore.