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Challenging outlook faces raw sugar manufacturers

17 April 2019: The prolonged period of low world sugar prices, driven by subsidised production in overseas countries is taking a heavy toll on Australia’s raw sugar manufacturers.

CEO of the Australian Sugar Milling Council (ASMC), David Pietsch said, “Efficient producers in trading nations like Australia are making a loss on every tonne of raw sugar sold and that is putting Queensland jobs at risk.”

An independent report commissioned by ASMC this year quantified the economic contribution of sugar manufacturing in Queensland at over $4 billion and over 22,500 jobs. That represents 1.2% of Queensland’s Gross Regional Product and almost 1% of the state’s total employment.

“The Indian Government’s trade distorting subsidies have contributed to a worldwide glut of raw sugar and a collapse in world prices,” Mr Pietsch explained.

“The over-supplied sugar market is severely challenged with world prices stuck in a range between 12 and 13.5 US cents per pound (c/lb), levels well below our average cost of production,” said Mr Pietsch.

Hopes for medium-term price relief have centred on the World Trade Organisation (WTO), where formal dispute proceedings against India continue. Important consultations involving the WTO, Australia and India are taking place in Geneva this week.

“ASMC strongly supports the leadership role the Australian Government has taken in prosecuting a WTO case against subsidised sugar.’

“However, should the consultations commenced this week fail to deliver a satisfactory outcome, it is imperative Australia proceeds to the formal dispute panel stage as soon as possible,” Mr Pietsch added.

For sugar manufacturers suffering the immediate effects of low world prices, the WTO process will not be a quick fix. However, the action against India is significant and likely to deliver benefits to Australian industry over the medium term (*see further details below).

Sugar Manufacturing Election Priorities

 ASMC’s members have three, clear election priorities for an incoming federal government to help safeguard the interests of the raw sugar manufacturing sector.

“After the May 18 election, ASMC wants to see a continuation of strong, bipartisan government leadership on trade liberalisation and improved market access, including WTO action against Indian sugar subsidies,” said Mr Pietsch.

“Secondly, we continue to seek the removal of counter-productive regulations – including the Sugar Code of Conduct – that remain a drag on investment confidence in the sector.

“Finally, we urge active government support to jointly develop an Australian sugar industry revitalisation strategy that ensures the sector’s future profitability and resilience,” Mr Pietsch concluded.

*WTO at a Glance

The WTO dispute process will hold the Indian government to account for the disruption it has caused to world sugar markets. It will also build pressure for fundamental reform of India’s domestic sugar policies and its sugar industry.

WTO statistics show over 90% of disputes have been resolved to the satisfaction of the complainant:

  • Over 570 requests were lodged at the WTO between 1995 and 2018
    • 58% led to a formal dispute panel
    • 42% were satisfactorily resolved prior through discussions between the parties.
  • WTO panels take on average 12 months (WTO guidelines recommend ‘within nine months’)
  • Parties can appeal against a ruling and refer the panel’s report to the WTO’s Appellate Body for review
  • 93% of the panel reports were adopted by the parties (Compliance rate = 80-90%).