Sugar Producer

28 Sugar Producer NOVEMBER/DECEMBER 2018 India is spending tens of billions of dollars on new agricultural subsidies in bid to bolster support among farmers for Prime Minister Narendra Modi. And it's not just India's sugar production that is benefiting. The new subsidies come as India has little money to spend on them and little space to store all the crops. Modi, who ran in 2014 on a platform that included doing more for farmers, has promised to double their income by 2022, according to a recent Reuters report. Unrest in the countryside in the wake of falling commodity prices spawned bloody protests last year, with farmers in the capital carrying the heads of neighbors they say committed suicide. Modi hiked minimum price supports for crops to 25 percent in July, compared to the historical 3 or 4 percent during his first four-year term. But the move may backfire. The government lacks storage for the product and funds to buy it, experts say. The government's deficit target is already under pressure from high oil prices, Reuters reported. Subsidies for rice, corn, lentils, peanut and sunflower will all be above the current market price, according to Reuters. Sugar is also getting more government support, with India subsidies to increase the number of acres planted and forcing mills to meet export quotas regardless of price or cost. Dairy is also getting an infusion of subsidy money. The uptick in subsidies has sparked concern across the globe. The U.S. brought a complaint about rice and wheat support before the World Trade Organization (WTO) in May. Meanwhile, Brazil and Australia are taking WTO action over Indian sugar subsidies—not surprising, since India is now forecasted to supplant Brazil as the world's biggest sugar producer. DAIRY EXPORTS TO SURGE Dairy is one commodity for which the Indian government has taken big steps to increase exports with subsidies. India's exports of skimmed milk powder are expected to increase to 100,000 tons in fiscal year 2018-19. India's move could impact world prices that have dropped by half in the last four years due to surpluses. India's move on dairy comes in the wake of widespread protests by farmers who have struggled with oversupply in the domestic market. Two western Indian states are paying $727.86 a ton in subsidies for exports; the national government approved a 10 percent subsidy on top of that in July. The state subsidies alone would mean $72.78 million in government support if India exports 100,000 tons as expected. RICE AND WHEAT DRAW U.S. COMPLAINT India's subsidies for rice and wheat are far higher than what's allowed by the WTO, the U.S. said in a statement in May. Support for wheat has been more than 60 percent higher than the value of production during the last four years, according to the statement. Rice support has been more than 70 percent the value of production. The U.S. statement said anything over 10 percent violates WTO rules. The U.S. said India was at least the third-largest agriculture producer in the world and has moved from the tenth-largest exporter to the seventh as exports have increased 22 percent in recent years. India is the world's largest rice exporter, commanding a third of the world market with 20 percent of its crop. SUGAR EXPORTS SPARK CONCERN Brazil and Australia are also teaming to file a formal complaint with the WTO as India is set to become the world's largest sugar producer. The nations say any move by India to subsidize exports of its growing sugar stockpile is a threat to world price recovery. India has used domestic subsidies to encourage farmers to grow more acres of sugarcane. It recorded a record crop during the last harvest, and observers expect another record crop this year. India plans to spend $231 million to subsidize payments from mills to sugarcane farmers, Bloomberg reported in September. Mills in India have been struggling with a slump in local prices following the record crop. The government has mandated that mills meet export quotas even if prices are lower than the cost of production. India's expansion in sugar comes as world market sugar prices are at their lowest level in a decade, hovering around 10 to 11 cents, according to Jack Roney, director of economics and policy analysis at the American Sugar Alliance (ASA). That price is barely half the world average cost of producing sugar. "India shields its sugar producers from the vagaries of the volatile and often depressed world market," says Roney. "Indian sugar producers are not responding to world market signals. They are responding to government decisions on domestic sugar pricing and credit programs." Roney notes that export subsidies are illegal under WTO rules, though India apparently doesn't seem to care. "We are pleased to hear that two other big sugar exporters, Brazil and Australia, FROM THE ASA By Phillip Hayes | Director of Media Relations Unfair Competition India ramps up subsidy spending as other nations cry foul

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