India Approves Extending Sugar Subsidies to Cut Record Reserves

(Bloomberg) -- India approved sugar export incentives for another year to cut record stockpiles, defying criticism from growers such as Brazil and Australia that the Asian nation’s existing subsidies are depressing global prices and hurting their farmers.

The government will spend 62.68 billion rupees ($873 million) to subsidize exports of as much as 6 million tons of sugar in 2019-20, Prakash Javadekar, information and broadcasting minister, said after a cabinet meeting on Wednesday. The government will reimburse a portion of local and ocean freight charges and expenses related to handling, upgrading and processing sugar, according to a statement.

The latest move by India, which has been struggling with huge stockpiles due to bumper output in recent years, may further irritate major growers. Australia, Brazil and Guatemala have jointly requested the WTO to set up a panel to challenge India’s subsidies and make the nation more accountable for its “trade-distorting” policies. India vies with Brazil as the world’s biggest sugar producer.

“We are stunned by this development,” David Pietsch, chief executive officer at the Australian Sugar Milling Council, said in a statement. “India’s government has approved a massive market distortion.”

In the same statement, Australia’s Canegrowers chairman Paul Schembri urged the Indian government to consider alternative solutions, including long-term storage within the country. The sugar subsidies have contributed to the global sugar glut, and the adverse effects on sugar prices from the latest move will be felt around the world, he said.

Bloomberg earlier reported that the government was considering a proposal to provide WTO-compatible sugar export subsidies and help beleaguered mills cut reserves. Exports in 2018-19 are estimated at around 3.8 million tons, with the mills asking the government to help export a record 7 million tons in 2019-20.

The government last month decided to create a four-million-ton sugar stockpile starting this month at a cost of as much as 16.74 billion rupees.

India’s opening sugar stockpiles at the start of the 2019-20 season is expected at 14.2 million tons, the statement said. That’s about 9 million tons more than what’s needed to meet local demand for more than two months. Sugar output may drop to a three-year low of 28.2 million tons in 2019-20 from a record of 32.95 million tons this year as dry weather parches fields in some major growing areas, according to the Indian Sugar Mills Association.

--With assistance from Abhijit Roy Chowdhury.

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net;Shruti Srivastava in New Delhi at ssrivastav74@bloomberg.net

To contact the editors responsible for this story: Anna Kitanaka at akitanaka@bloomberg.net, Atul Prakash, Unni Krishnan

©2019 Bloomberg L.P.