India is all set to fight Brazil’s attack on sugarcane subsidies at WTO

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India has a “strong case” to fight an attack on its cost policy for around 55 million sugarcane farmers of the nation at the World Trade Organisation by Brazil’s far-right president Jair Bolsonaro, a senior government official shared recently.

“We will protect sugarcane subsidies at all costs because the sector needs government support. We are confident,” the official with knowledge of the matter said after the government recently finished reviewing the matter. A panel of top WTO consultants aided the government in reviewing the sugarcane trade regime to avoid violating any WTO clause, he states.

Brazil is the world’s major sugarcane producer, whereas India secures the second position. Brazil is scared that Indian sugar exports could hamper Brazil’s and global prices. Guatemala and Australia are other nations to complain about India’s price policy triggering an oversupply. A primary reason why Jair Bolsonaro won last year’s presidential election in Brazil is that he promised to get the economy out of a four-year slump.

In a dispute, India has been accused of pursuing a policy to guarantee a high lowest cost, known as fair and minimum price or FRP, for Indian cane-growers that have invited production to go high.

In its complaint, the Brazil trade ministry said “suspicion is that Indian domestic support (to farmers) and its subsidies to sugar exports caused significant impacts in the sugar market in a context of falling prices and decreasing production in the main centers Brazil, China and Thailand”.

Under the WTO rules (Article 6 of the Agreement on Agriculture), India is allowed to give a “product-specific AMS (Aggregate Measurement of Support) for sugarcane up to 10% of the total value of production of cane. This also usually applies to subsidies across crops, which importantly means that all subsidies to agriculture are not allowed to exceed 10% of their production cost.

“A panel of WTO experts consulted by the government has advised us certain measures. We are confident of not falling foul of any WTO provision. The subsidies will continue,” a second official said, without elaborating. India’s sugar-support programmes are critical for millions of low-income farmers, the official informed.

India gives a federally fixed secured cost called “fair and remunerative price” on the cane to be paid by mills at Rs 261.25 a quintal (100 kg) for a cane recovery cost of 9.5%. The recovery cost refers to how much sugar is extractable from a given quantity of cane, which varies across states. The FRP is Rs 275 a quintal for a 10% recovery rate.

Kavita Kuruganthi of the Alliance for Sustainable & Holistic Agriculture shared that about 80% of India’s agricultural produce is under some threat at the WTO.

“From a farmer union perspective, whenever there is a new threat to India at the WTO, whether it is our food-stock piling, or when our public distribution system is being threatened, this kind of a defensive approach by the government is inadequate,” Kuruganthi said.

“What we are pointing out is the unfair rigged rules, as we are calling them, at the WTO. Other countries can challenge our meagre support to farmers but the ones challenging us to give far more subsidies. So, we need a review of the entire WTO regime,” she said.

India’s main argument is that WTO norms while capping subsidies at 10% of the total cost of production, don’t permit inflation to be factored in because of the base year for estimation of price, levels are 1986-87.

India’s sugar production increased from 20.3 million tonnes in 2016-17 to 32.9 million tonnes in 2018-19. This resulted in the 2019-20 sugar season to open with record reserve stocks of 14.2 million tonnes. India’s share in global sugar exports is 5-6% while Brazil’s share is 34%.