The sugar sector is one of the important agro-industries, particularly in emerging and developing economies where its support for rural development is fairly important. Globally, the industry is not informed by a level playing field when it comes to aiding the domestic sector. Historically, practically all of the major players have enjoyed some level of protection and support. 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 intention was to substitute gasoline with cane-based ethanol in automobiles. 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 (see table). Prior to the reform of the EU’s sugar regime, the industry was nurtured to become globally competitive through a variety of support. The growth of the Australian sugar industry has undoubtedly benefitted from the government supported research infrastructure which has arguably attracted several multi-nationals to buy local sugar companies. Therefore, the recent press reports that Australia is ganging up with Brazil to fight the proposed Indian export subsidy through a formal complaint to the World Trade Organization (WTO) seems touch bit curious.
Sugar and ethanol production in Brazil – 1990-2017
|Year||Sugar production (mln tonnes)||Sugar exports (mln tonnes)||Ethanol production (bln litres)|
Source: ISO, FO Licht
Brazil and Australia are the top first and third sugar exporters. While in absolute terms Brazil is over exposed in a depressed market, in relative terms, Australia exports the bulk of the sugar it produces, around 75%, compared with 65% for Brazil. Both these exporters are currently feeling the pinch from the global sugar glut which has seen prices fall below the costs of production in these markets. Raw sugar prices in New York slumped to a 10-year low of 9.91 cents on August 22. Their domestic industries are clearly suffering. In Brazil, indebtedness in the sector is increasing and in Australia, some cane growers are opting for other more profitable crops.
It is not just in the recent past that India has been supporting its sugar industry with export subsidies when the need has arisen. It is just that the sugar output has soared significantly recently and set to continue. According to the Rabobank’s latest quarterly report, 2017/18 sugar output is estimated at 35 mln tonnes raw value (mtrv). This is expected to rise to 36.7 mtrv in 2018/19. With domestic consumption of around 27 mtrv, there is a significant surplus. The government is currently considering a proposal to provide INR45 billion (US$617 million) assistance to sugar mills to boost exports amounting to some 5 million tonnes.
The analysts, policy makers and industry executives have known for a long time that the world sugar market is a residual ‘dump’ market for surplus sugar, distorted by the state policies of the major producers and exporters. The major structural exporters, the likes of Brazil and Australia clearly get peeved when non-structural exporters (e.g. India), dump surplus sugar on the world market to keep the domestic price high and depress global price, particularly since they have made great strides (along with EU and Thailand) to ease protection of their industries. India has resisted reform of its sugar sector as the political cost would be untenable.
But 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. For example. some ten years ago, Russia used to import over 3 million tonnes of sugar. It is now more than self-sufficient. India is simply a fall guy.