On WTO Ruling against Indian Sugar industry – Lasting solution

News:  The World Trade Organization (WTO) ruled against India’s sugar and sugarcane subsidies

Though, the ruling is inconsequential for the country’s current policies concerning the Sugar industry. But it does provide an opportunity to address some of the chronic issues that often require the government to bail this industry out.

Read more here: WTO panel’s sugar report against India

Why the ruling is inconsequential for India as of now?

Firstly, the subsiding of sugar exports by India is not required now. Sugar prices are spiking globally, due to crop damage in Brazil.

As a consequence, the Indian sugar mills are said to have already secured export orders for about 3.8 million tonnes without any government support. The industry seems confident of exporting at least 6 million tonnes of sugar this year.

Secondly, the sugar mills have been permitted to produce ethanol directly from sugarcane juice and sugar for blending with petrol. It has improved the sugar industry’s financial health.

Thirdly, Analysts anticipate the global and domestic prices, and supply situation to remain favorable for the local sugar industry in the next season as well.

The current good run in the sugar sector seems like the ideal time to complete the unfinished reforms in this sector.

What are the issues facing the sugar industry?

Disconnect in the prices of sugarcane and sugar (read input and output): This often causes a liquidity crisis in the sugar industry, leading to the accumulation of cane price arrears.

The fair and remunerative prices (FRP) for sugarcane are generally fixed prior to the cane crushing season, without estimating the market price of sugar.

The state-advised cane prices are generally pitched higher than the FRP, due to political reasons.

What are the suggestions to address the issue of disconnect in the prices of sugarcane and sugar?

Implementation of C Rangarajan committee suggestion: The C Rangarajan committee on sugar sector reforms had suggested that the mills should share 70 percent of their revenue from sugar with cane growers. This is in line with the pricing mechanism followed in many other sugar-producing countries. The sugar industry had accepted the Rangarajan formula, but it has been implemented rarely.

Alternative suggestion: To club the prices of sugarcane with the minimum support prices of other crops and refer it to the agricultural pricing committee.

Source: This post is based on the article “Lasting solution” published in Business Standard on 23^rd   Dec 2021.