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FAQ on WTO and India | Updated July 2019

The Australian sugar industry strongly supports global efforts to hold the Indian government to account for its non-WTO compliant sugar industry support mechanisms.

A formal WTO dispute has been initiated by the Australian, Brazilian and Guatemalan governments with a Panel request lodged with the WTO Dispute Settlement Body on 11 July 2019. It is expected that the Panel will be formed by the end of August 2019.  Costa Rica, the EU, Russia and Thailand have indicated their support as third parties.

As it evolves, the case will involve detailed and complex legal arguments.  This document provides answers to some of the more straightforward and common questions regarding the Indian sugar industry, its WTO obligations, and the Australian sugar industry’s concerns.    

The answers are provided by the Australian Sugar Milling Council and represent our understanding, based on the available information.

How significant is the sugar industry in India?

  • The size and importance of the industry makes it influential in shaping Indian government policy.
  • The Indian sugar industry employs 500,000 mill workers and 30million canegrowers on 5 million hectares of land spread across 16 Indian states. It is estimated that the industry [1] –employsaround 6% of India’s total working population[2] and contributes around 1% of India’s GDP.

The Indian sugar industry has grown in recent years, is it expected to continue to produce a surplus?

  • The industry is transforming and is now the largest sugar producing country globally (33.1 million tonnes [mt] in 2018/19[3]compared to Brazil’s 29mt[4]).  The industry is expected to produce in excess of 30mt in 2019/20.
  • In seven of the last eight years the industry has produced more sugar than its domestic requirements of around 27.5 mt and in the absence of policy reform and very bad monsoons, many now believe that India will continue to produce more sugar than its requirements..[5]
  • Excessive cane and sugar production is being driven by:
    • Government policies, including very high minimum regulated cane prices (that are 50-60% higher returning than any competing crops).
    • adoption of new cane varieties like Co-0238 with improved drought-tolerance
    • ample water availability from good monsoons.
    • favourable growing conditions and commercial terms (cane can withstand weather fluctuations, the mills are an assured buyer [i.e. a mill cannot close until it crushes all sugarcane grown in the area], the grower receives an assured price and there are no intermediaries (the cane is bought directly and payment is made directly into grower bank accounts).
    • 5 million hectares of land under crop in over 16 states, and
    • limited product diversification and a large reliance on sugar revenues (81% of milling revenues coming from sugar sales, 13% from ethanol and 6% from co-generation).

What are India’s World Trade Organization Agreement obligations?

India has legally binding commitments on the level of subsidies and export subsidies it can provide.

What is Australia, Brazil and Guatemala challenging in the WTO?

  • The countries state that India has exceeded its WTO commitments on domestic support and export subsidies under the WTO Agreement on Agricultureand the WTO Subsidies Agreement.
  • Under Article 6.4 of the WTO Agreement on Agriculture, India can provide product and non-product specific domestic support to its canegrowers up to 10% of the total value of production (the so-called de minimis obligation).
  • That is, per Australia’s Counter-Notification (C-N)[6]to the November 2018 meeting of the WTO Committee on Agriculture, India, at least between 2011/12 and 2016/17 exceeded its 10% de minimis One program alone, the Fair & Remunerative Price (FRP), the minimum cane price regulation and system, provides between 77% and 100% support according to the calculations in the C-N. This represents a clear and significant breach of India’s WTO obligations.
  • Also, India cannot provide export subsidies for sugar or sugarcane in excess of its commitments. For example, the US$119/t ‘assistance’ subsidy provided to the millers in 2018/19 that is linked to the 5 million tonne (mt) Minimum Indicative Export Quota (MIEQ) represents a clear and significant breach of India’s WTO obligations.

Why are the Indian government’s sugar policies problematic for global exporters and the domestic Indian growers and milling industry?

In relation to global exporters like Australia, Brazil and Guatemala who are also global price-takers:

  • The very large domestic surpluses currently being generated by India are having a significant impact on global stock levels. History demonstrates that there is a strong inverse correlation between rising ‘stocks to use’ ratios and global raw sugar prices. India is currently the largest contributor to ‘all time high’ global ‘stocks to use’ ratios (currently 53%).
  • Expert modelling demonstrates that if India produced only enough sugar for its domestic needs, the global ‘stocks to use’ ratio would be lower and world raw sugar prices higher to the tune of AUD$38/t in 2017/18 (estimated), AUD$46/t in 2018/19 (estimated) and AUD$20/t in 2018/19 (forecast)[7].
  • In effect, the revenues of the Australian sugar milling sector would be AUD$468 million higher over these three years if India produced only enough sugar for its domestic requirements.
  • Further second round impacts are likely as Australian sugar is displaced from traditional markets (e.g. margins are eroded because freight costs increase to service a market further away).

 

In relation to the domestic sugar industry in India policy reform is required because:

  • the very high, regulated cane prices considerably increase Indian raw sugar milling costs (currently estimated to be USD$535/t[8][Australia milling costs are USD$330/t[9]]).
  • the government set ‘ex-mill’ raw sugar prices have not been increased in line with the increase in the regulated cane prices.
  • the milling companies do not generate sufficient revenues to become profitable or to pay the canegrowers their regulated prices, thereby accumulating large arrears which are paid in instalments (if at all), and
  • the complaints from growers compel government to provide additional incentives to the mills to generate revenue and offset costs e.g. assistance to store sugar and export subsidies. These subsidies promote greater inefficiencies and does not result in mill closures, less supply and global price corrections. 

What does the global sugar industry want to see?

Ultimately, to hold India to account in terms of meeting its WTO obligations and to restore a level-playing field in the global sugar market.

What actions have taken place to date?

  • The concerns of Australia, Brazil and Guatemala are not with Indian growers or millers, but the policies of the Indian government that incentivise over production, distort market conditions including depressed prices, and create an uneven and unfair global trading environment.
  • The three governments have made numerous bi-lateral representations to the Indian government over the past 12 months highlighting their concerns with Indian sugar policies.
  • The Australian government in particular has asked numerous questions of the Indian government questioning its commitment to its WTO obligations and global free trade – including the limited reporting of its subsidy policies.
  • The Australia Government lodged a Counter-Notification (C-N)[10]to the November 2018 meeting of the WTO Committee on Agriculture, which formally outlined Australia’s technical concerns and which received support from 13 other countries, and
  • In separate but aligned actions, and as a precursor to formal dispute proceedings, Australia and Brazil lodged their respective WTO Consultations request documents in Geneva on 27 February 2019 and Guatemala lodged soon after, representing a significant escalation of proceedings. Costa Rica, the EU, Russia and Thailand have since stated an interest to become third parties to the dispute proceedings.
  • On 11/12 July 2019, Australia and Brazil will lodge a Panel request with the WTO Dispute Settlement Body.

 So the global sugar industry and associated governments will seek withdrawal of all illegal subsidies and significant reform of the Indian domestic sugar industry?

Yes, subject to further analysis and discussion, and further to the removal of all illegal subsidies, the Australian sugar industry considers that reforms could include:

  • Linking the price of cane to domestic sugar prices and removal of all product-specific subsidies that result in a misallocation of resources.
  • Exposing the millers to market conditions to promote efficiencies.
  • Diverting illegal subsidies to assist millers store the surplus sugar.
  • Enhancing incentives to produce greater volumes of ethanol from the sugar juice.
  • Introducing a social safety (welfare) scheme for subsistence farmers to assist the transition to a more market oriented agriculture sector.

Is the WTO an effective mechanism to resolve trade disputes?

The following statistics provided by the World Trade Organisation highlight the effectiveness of the trade dispute mechanisms:

  • Over 570 requests for consultations brought to the WTO between 1995 and 2018
  • 58% of the requests resulted in the establishment of 282 dispute panels
  • 42% (the remaining requests) were resolved through discussions between the parties and never reached the panel stage
  • 93% of the reports circulated by dispute panels were adopted by the parties  with a compliance rate of around 80-90%
  • The time period from the establishment of a dispute panel to the circulation of the report to the Members “should” in no case exceed nine months (Article 12.9 of the DSU). In practice, however, panel proceedings take an average of 12 months.End.

[1] Indian Sugar Mills Association presentation to the Taskforce on Sugarcane & Sugar industry, 21 January 2019

[2] Indian Labour Statistics 2015 

[3] USDA, GAIN Report on India, 5-6-2019

[4] UNICA

[5] Indian Sugar Mills Association presentation to the Taskforce on Sugarcane & Sugar industry, 21 January 2019

[6] WTO online and search under ‘Document symbol’ for ‘G/AG/W/189’

[7] GreenPool Commodities report to the ASMC, February 2019 at 

[8] Indian Sugar Mills Association

[9] Feedback from Australian milling companies

[10] WTO Online and search under ‘Document symbol’ for ‘G/AG/W/189’

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