Will Sugar Retain Its Sweetness?

While India is dilly-dallying over withdrawal of export subsidies to sugar mills, major sugar exporters such as Australia and Thailand are continuing to mount pressure on India at the multilateral level to ensure the subsidies are revoked as early as possible. The committee on agriculture of the World Trade Organization (WTO) is all set to discuss the issue in its meeting scheduled for Thursday.

Australia and Thailand had approached the WTO last November asking for details on the sugar export subsidy being provided by India. They had later threatened to drag India to the dispute settlement panel of the WTO if the subsidies were not withdrawn. This made agriculture and food minister Sharad Pawar reduce the period for the subsidy from April 1, 2009 earlier to September 30, 2008.

There is also pressure on Mr Pawar from within the government to remove the subsidy immediately to check inflation and sugar prices. The committee of secretaries had recommended last month that export subsidies should be withdrawn with immediate effect as they were contributing to inflation.

Continued pressure from WTO members would ensure the subsidies are not extended beyond September 30. The subsidy is given in the form of freight assistance to sugar mills. The government has been subsidising inland movement of sugar in coastal states to the extent of Rs 1,350 a tonne and Rs 1,450 a tonne for mills located in other states since last year.

It was aimed at providing support to the industry, which was hit by a 35-40% crash in prices. However, now with sugar prices rising more than 25% over the last few weeks, the subsidy has clearly outlived its utility.