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 against India has been initiated by the Australian, Brazilian and Guatemalan governments (the co-complainants).
To date, the Australian , Brazilian and Guatemalan governments have lodged their First and Second Written Submissions and the second and final hearing of the WTO Dispute Panel and Parties concluded in late March 2021.
The Panel members that will decide on the legitimacy of India’s actions was announced in late October 2019.
The US, Canada, Colombia, Thailand, Costa Rica, the EU, Russia and Thailand amongst others have indicated their support as third parties.
ASMC and CANEGROWERS have developed a flowchart to explain the WTO dispute settlement
This is a highly technical and complex case. Below we provide 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 ASMC and represent our understanding based on the available information.
Please also refer to Sugar Policy Insights April 2020 for information on the dispute as provided by the Department of Foreign Affairs and Trade.
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 30 million canegrowers on 5 million hectares of land spread across 16 Indian states. It is estimated that the industry  employs around 6% of India’s total working population  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 now competes with Brazil as the largest sugar producing country globally (33.7 million tonnes [mt] in 2020/21  compared to Brazil’s 29.6mt in 2019/20 ).
- In fact, in all but one year over the last ten years India has produced more sugar than its domestic requirements of around 26.5 mt. In the absence of policy reform and poor/no monsoonal rains, many commentators believe India will continue to produce much more sugar than it requires .
- The build up of very large excess stocks – currently around 12 mt – is the real problem for exporters like Australia because the market anticipates that these stocks will one day be exported, meaning global prices are held artificially low.
- Excess cane and sugar production is being driven by:
- Government policies, including very high minimum regulated cane prices (that are 50-100% higher returning than any competing crops).
- Adoption of new cane varieties like Co-0238 with improved drought-tolerance.
- Ample water availability from good monsoonal rains.
- Favourable growing conditions and commercial terms (cane can withstand weather fluctuations and the mills are an assured buyer [i.e. a mill cannot close until it crushes all sugarcane grown in its 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.
- Limited product diversification from the cane juice 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 are the co-complainants 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 Agriculture and 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 minimisobligation).
- That is, and per Australia’s written submissions to the WTO panel, it is argued that India has exceeded its de minimis obligations on numerous occasions over the past number of years. One program alone, the Fair & Remunerative Price (FRP) – the minimum cane price regulation and system – provides up to 93% support. 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.
When will the WTO processes be concluded?
- The timeframes of WTO disputes are difficult to predict and the COVID-19 pandemic has resulted in further delays given the inability of parties to travel and hold hearings.
- At this stage, and whilst subject to a formal notification from the panel, the panel’s report could be circulated to the WTO membership in Q3 or Q4 of 2021. If the report is adopted, India will have a period of time to bring itself into compliance. Depending on the complexity of reforms needed, this compliance period could be 6–18 months.
- Furthermore, under the WTO dispute settlement rules, panel reports can be appealed to the WTO Appellate Body. However, WTO members have failed to agree on the selection of new Appellate Body members and as a result it is not currently hearing new appeals. In the meantime, the work of the panel will continue, and Australia is working with others to develop interim appeal arrangements as well as advance reforms that ensure a properly functioning Appellate Body.
- Once a panel report is adopted, and after the end of the compliance period, Australia may be authorised to impose retaliatory measures to the value of India’s violation. Australia may bring a compliance proceeding if it considers that India has failed to bring itself into compliance with the recommendations and rulings of the panel.
Why are the Indian government’s sugar policies problematic for global exporters and the domestic Indian growers and milling industry?
In relation to 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 high ‘stocks to use’ ratios and global raw sugar prices.
- 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) .
- 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  Australia milling costs are USD$330/t  in comparison).
- 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).
- 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 prevent normal market corrections such as farmers growing other crops, mill closures, less global sugar 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 diplomatic and WTO actions have taken place to date?
- The concerns of Australia, Brazil and Guatemala are not with Indian growers or millers, but rather 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.
- Prior to formal WTO proceedings commencing, the governments of the three co-complainants nations made numerous bi-lateral representations to the Indian government highlighting their concerns with Indian sugar policies.
- The Australian government in particular has asked numerous questions of the Indian government in formal WTO proceedings, questioning its commitment to its WTO obligations and global free trade – including the limited reporting of its subsidy policies.
- In November 2018, the Australia government lodged a Counter-Notification (C-N) to the WTO Committee on Agriculture, which formally outlined Australia’s technical concerns and which received support from 13 other countries.
- In February 2019 the Australian Government, together with Brazil (and subsequently Guatemala), launched formal WTO dispute settlement action concerning India’s sugar subsidies.
- In July 2019, Australia and Brazil lodged their Panel request with the WTO Dispute Settlement Body.
- In January 2020 Australia, Brazil and Guatemala lodged their First Written Submissions to the WTO panel and the first hearing occurred in May 2020. In February 2021 Australia, Brazil and Guatemala lodged their Second Written Submissions to the WTO panel with the second and final hearing to conclude in late March 2021.
So the global sugar industry and associated governments will seek withdrawal of all illegal subsidies and reform of the Indian domestic sugar industry if successful?
Yes, if successful, and subject to further analysis and discussion, and further to the removal of all illegal subsidies, the Australian sugar industry would support reforms such as:
- A significant lowering of regulated cane prices (FRP and SAP) and cane and sugar price liberalisation and exposing Indian growers and millers to market conditions to promote efficiencies and a re-allocation of resources.
- Appropriate regulation and enforcement to achieve the E20 by 2030 ethanol mandate with a focus on manufacturing ethanol from sugar juice.
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 were brought to the WTO between 1995 and 2018:
- 42% of requests were resolved through discussions between the parties and never reached the panel stage.
- 58% (the remainder) of requests resulted in establishment of 282 dispute panels.
- 93% of the reports circulated by dispute panels were adopted by the parties with a compliance rate of around 80-90%.
 Indian Sugar Mills Association presentation to the Taskforce on Sugarcane & Sugar industry, 21 January 2019
 Feedback from Australian sugar milling companies.