Birmingham threat to report Indian sugar subsidies to WTO

Australia has warned India that unless it cuts hefty subsidies paid to its cane farmers that have led to a massive sugar glut and record low prices on world markets, it risks being reported to the World Trade Organisation.

The Australian understands Trade Minister Simon Birmingham raised the sensitive sugar issue with India’s high commissioner to Australia, Ajay Gondane, and last Thursday wrote a strongly worded letter of caution to India’s Minister for Commerce and Industry, Suresh Prabhu.

The possibility of the world’s largest sugar exporter, Brazil, joining Australia in seeking to have India and Pakistan declared in contravention of global trade rules over the size and scale of their sugar farming subsidies, has also been discussed.

Global sugar prices have hit a 10-year low in the past two years, turning Australia’s $2 billion export sugar industry into a $1.4 billion sector, rendering its 4100 growers unprofitable and souring the industry’s long-term future.

A looming glut of Indian sugar on world markets has seen raw sugar prices collapse from $595 a tonne two years ago to a low of just $294 a tonne this week, at a time when an abundant cane crop is rolling into Australia’s 24 sugar mills along the Queensland and northern NSW coasts.

“That’s territory where we haven’t been for a decade but that’s the fickleness of sugar; it’s one of the most distorted agricultural commodities traded globally because it is such a big employer in major sugar producing nations such as India and is so sensitive to political manipulation.”

India is heading to a general election in April next year and, with more than 50 million people farming sugarcane or working in its sugar mills, generous crop incentives have seen national sugar production leap from 20 million to 35 million tonnes this year, with the surplus heading for export.

In contrast, Australia, one of the world’s top four sugar exporters, sells 3.7 million tonnes of raw sugar internationally each year.

Australia says subsidies to Indian canegrowers — who form one of the biggest voting blocs in the country — far exceed the level of farmer assistance permitted under WTO rules of a maximum 10 per cent of the total value of the industry’s average production.

“We won’t hesitate to tell other nations when we believe they are acting in breach of the established rules of international trade,” Mr Birmingham said yesterday.

“Sugar subsidies in India and Pakistan are clearly hurting sugar growers in other parts of the world and are an unsustainable distortion that ought to be brought to an end.”

Far north Queensland cane grower Glen Fasano admits he didn’t expect the collapse of world sugar prices to hit so quickly or severely. With a substantial 460ha of cane planted this year on his family’s farms between Mossman, Cassowary and Thala Beach, Mr Fasano said it hurt to be bringing in a harvest of 37,000 tonnes that will barely cover costs.

“I’ve been growing cane for 40 years and this is pretty bad, but luckily we’ve had a couple of good seasons so we’re not changing what we do just yet,” Mr Fasano said.

“But next year, if the sugar price stays below $350/tonne, is when you will see people consider not planting.’’