Is it right time to withdraw sugar export subsidies?

The international prices of raw sugar have galloped in August 2021 to above $430/MT (19-20 cents/lb), and have been on an upward trend since February 2021 from around $340/MT (15.5 cents/lb). And this sharp rise in global prices is expected to make it easier for Indian mills to sell the sweetener on the world market. Little wonder therefore that the Centre is mulling the idea of withdrawing sugar export subsidies from the new sugar season (SS), scheduled to begin in October. Going by a recent Reuters' report, the current dispensation is for doing away with the subsidy if exports can happen on their own. India, incidentally, is the world's biggest sugar producer after Brazil. There is a logic in the thinking that if the demand for Indian sugar is higher, global prices are supposed to firm up and subsidy may not be required at all.

If a recent ICRA analysis is to be believed, traditionally, subsidy has made exports viable for India which aided the economy to maintain the domestic sugar demand-supply balance in addition to timely stock liquidation and improved liquidity. However, recent firmed up prices have made exports feasible even without subsidy. With exports under OGL already getting contacted, the export prospects look promising for upcoming sugar season even if the subsidy moderates from current levels.

Significantly, Brazil traditionally the largest sugar-producing and exporting country, was expected to witness a moderation in production of sugar for 2021/2022 (on going sugar season from April-March) since beginning of CY2021 owing to drought, the frost incidences in recent months and lower production data released recently by UNICA has resulted in downward revision in production estimates for the country. The country has progressed more than half way through the crushing season with witnessed decline in sugar production of 7.3 per cent Y-o-Y in CS Brazil Region (contributed 93 per cent of total sugar production in 2020/21) of which São Paulo region witnessed decline of 11.6 per cent Y-o-Y (contributed over 60 per cent of total sugar production in 2020/21).

It is pertinent to mention here that the Indian government's decision to offer this export subsidy has never gone down well among the other large suppliers of sugar in the global market. Brazil, Australia, Guatemala - all have been protesting and opposing such a move of Indian government. So much so that the World Trade Organisation (WTO), in 2019, had to set up panels to look into the complaints lodged by the other sugar producing and exporting countries. Sugar exports subsidy has been a vexed issue since then.

Now quite interestingly, Indian sugar exporters have, for the first time, entered into export contracts five months ahead of shipments. This was possible clearly because of the drop in Brazil's production. Therefore, this can be the right time for doing away with the export subsidy without causing any harm to the exporters. And more so with the production cost of raw sugar being low and the present prices being enough for millers to export their stock at a profit.