Not many years ago, India was a wildcard in the sugar market. Periodic swings in output would tip the global sugar price one way or the other. At the time, India’s sugar regime was informed by production and market policy controls. The commodity is the most regulated of all commodities in India and well supported by the central and local government. Other sugar industries in the world can only hope for such indulgence. In 2012, the committee, led by C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, favoured complete decontrol of the sugar industry. But the political masters were reluctant with wresting the production arm largely because of the debt they owe to their fairly influential political constituency – millions of cane growers. With cane payment system skewed towards benefitting growers, the government is happy to step in to subsidise the export of surplus sugar. To those in the know, India’s support for its sugar industry has been known for a long time and quite transparent. In its quarterly report1 in 2015 Rabobank pointed out that despite the fact that sugar price in mid-2015 was well “below the cost of production for the majority of producers in the world ….government intervention” whether through export subsidies, as was the case in India “prevented the transmission of world market price signals to producers” which would have served to control output. The likes of Brazil and Australia took no action than to launch a complaint against India at the WTO but are doing so now. So, what has changed as the principle hasn’t?
In 2015/16 India produced 27.4 million tonnes raw value according to FO Licht’s data. This catapulted to 35.3 million tonnes in 2017/18. The increase in output was less from expansion in acreage but rather increase in productivity both in the field and factory – USDA noted in its attaché report2 that sugar recovery rate has increased to 11.9%. Surplus production of over 8 million tonnes, a good part of it destined for the export market clearly added to the subsequent global glut and fall in sugar price.
Brazil and Australia, structural sugar exporters, exporting some 70%+ of their output are clearly exposed. India’s output last year was evidently a tipping point. Their industries are clearly adversely impacted. But their formal complaint to the WTO smacks both of entitlement on the one hand and shielding their complacency in restructuring their respective industries in the face of change.
Indeed the global sugar landscape continues to be in the throes of change. Russia, which was major sugar importer nine years ago, has now become a surplus sugar producer and has started exporting. Every year, the International Sugar Journal provides a snapshot on investment activity in the sector. In the recent past, most of the investment has been in the cane sugar sector. While some projects do fall by the wayside, incremental increases in output from the remaining projects does eat away demand. Angola is set to produce 100,000 tonnes sugar this year. A few years ago, it produced none.
To quote from the editorial comment last October, alas “Australian and Brazilian sugar industry analysts have simply not served their respective industries well. Barring weather-led impacts on sugar production, over the past decade, investments by many sugar producing countries to drive productivity and production has contributed to a far tangible increase in output and reduction in relative demand. India is simply a fall guy.”
Lest we forget, Brazil’s fledgling sugar industry began to expand dramatically soon after the Brazilian government initiated the National Alcohol Programme ‘ProAlcool’ in 1975 In response to rocketing oil prices in the ‘70s. The effect of the programme was to cross-subsidise sugar production. Over the period 1990-2010, sugar production increased five-fold and sugar exports, 17-fold. Following the credit crunch in 2008, indebtedness has increased the industry’s woes. In December 2017, the Brazilian National Biofuels Policy, RenovaBio was approved in Congress. This was done as much to cut sugar output and reduce the industry’s vulnerability to the global market under the guise of energy security and reducing emissions.
Arguably, the Australian sugar industry has undoubtedly benefitted from the government supported research infrastructure which has supported its growth and attracted several multi-nationals to buy local sugar companies to the point that most of the industry is foreign-owned.
India’s pre-emptive move to allow the use of cane juice in the production of ethanol in a major policy change recently to boost output to support both energy security and climate change goals may yet pacify its critics as more cane is diverted away from sugar production.
1 Rabobank, 2015a. Deficit in 2015/16…….but so what? Sugar Quarterly Q2, pp 10
2 USDA (2018) India – Sugar semi annual. Gain Report No: IN8115 https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Semi-annual_New%20Delhi_India_10-18-2018.pdf