14 May Bitter Sugarcane Subsidy

THIS ARTICLE COVERS ‘DAILY CURRENT AFFAIRS’ AND THE TOPIC DETAILS OF “Bitter Sugarcane Subsidy”. THIS TOPIC IS RELEVANT IN THE “ ECONOMICS” SECTION OF THE UPSC CSE EXAM.

Why in the News?

The WTO is examining India’s policies on sugarcane subsidies following accusations that the country is offering domestic support and export subsidies beyond the allowed limits. Countries such as Brazil, Australia, and Guatemala have filed disputes, arguing that India’s support measures surpass its commitment levels and breach WTO regulations under the Agreement on Agriculture (AoA).

About Agreement on Agriculture(AoA)

• The Agreement on Agriculture (AoA) is a crucial WTO treaty designed to curtail agricultural support and subsidies given to domestic producers by various countries. 
• This agreement, negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and ratified in 1994, targets three primary areas: market access, domestic support, and export subsidies.

Domestic Support: 

• The agreement mandates reducing domestic subsidies that distort free trade and fair pricing. Developed countries are required to decrease their Aggregate Measure of Support (AMS) by 20% over six years while developing countries must reduce theirs by 13% over ten years. 
• Subsidies under this provision are classified into three categories: Blue Box, Green Box, and Amber Box subsidies.

Market Access: 

• This provision necessitates that countries progressively lower fixed tariffs, such as customs duties, to facilitate free trade and convert non-tariff barriers into tariff duties.

Export Subsidy: 

• Export subsidies include financial assistance for agricultural inputs, making exports cheaper, or other export incentives like import duty remission. These subsidies can lead to the dumping of heavily subsidised, low-cost products in foreign markets, potentially harming the domestic agriculture sectors of those countries.

Objectives of AoA

• The AoA mandates that developing countries meet reduction commitments by setting deadlines, aiming to create a fairer trading system that boosts market access and enhances farmers’ livelihoods worldwide.
• The AoA tackles issues such as tariff reduction and access opportunities, aiming to improve market access by removing trade barriers.
• The AoA seeks to create a fair and market-driven agricultural trade system.

What are the accusations against India’s sugarcane subsidy?

• In 2019, Brazil, Australia, and Guatemala complained to India at the WTO, asserting that India’s sugar subsidies violate international trade regulations. Subsequently, in 2021, a WTO panel upheld these allegations. 
• However, India contested the findings, preventing the panel’s report from being endorsed by the WTO’s Dispute Settlement Body.
• The United States and Australia have alleged that India’s domestic support measures do not comply with several provisions of the WTO’s Agreement on Agriculture. From 2018 to 2022, India’s Market Price Support consistently exceeded 90% of the value of sugar production each year, surpassing the permitted limit of 10% stipulated by the WTO’s AoA.
• The panel concluded that India’s sugar export subsidies did not align with WTO agreements. It also emphasised India’s failure to report its domestic support measures and export subsidies, raising concerns about India’s compliance with its WTO commitments.

India’s Domestic Sugarcane Subsidy

• Fair and Remunerative Price (FRP): This is a fixed rate established by the government, acting as the minimum price obligated for sugar mills to compensate farmers for their sugarcane. FRP guarantees that farmers receive equitable and satisfactory compensation for their produce.
• State-Advised Prices (SAPs): In certain regions, farmers receive supplementary payments alongside the FRP to encourage enhanced production efficiency. In specific states, sugar mills offer additional payments to farmers through state-specific support mechanisms known as State-Advised Prices (SAPs).

Subsidy Calculation:

• The report employs a methodology endorsed by a WTO panel, which previously found fault with Indian sugar subsidies from 2014-15 to 2018-19. This approach carefully considers India’s Fair and Remunerative Price (FRP) for sugarcane, which serves as a baseline for sugar mill payments and the State-Advised Prices (SAPs) in certain areas.

Market Price Support (MPS) Data:

• India’s MPS for sugarcane during the years 2018-19, 2019-20, 2020-21, and 2021-22 amounted to $15.9 billion, $14.6 billion, $16.5 billion, and $17.6 billion. These figures consistently exceeded 90% of the sugar production value annually, significantly surpassing the allowed threshold of 10%.

India’s Stand

• India disputed the WTO panel’s categorisation of FRP and SAPs as market price support under the AoA.
• The assessment includes all sugarcane production in India for subsidy computation, regardless of whether the sugarcane was ultimately delivered to sugar mills for processing. 

Importance of Sugarcane Subsidy 

• Support for Sugarcane Producers: This subsidy offers financial assistance to sugarcane producers, ensuring they maintain a steady income and encouraging ongoing sugarcane cultivation.
• Domestic Sugar Industry: This subsidy plays a crucial role in India’s domestic sugar industry, influencing both production levels and pricing dynamics. The government’s Fair and Remunerative Price (FRP) acts as a baseline for sugar mill payments to farmers, guaranteeing them a minimum income.
• Farmers’ Livelihoods: Directly impacting the livelihoods of sugarcane farmers, this subsidy affects the prices they receive for their crops. The FRP and State-Advised Prices (SAPs) are pivotal in determining these farmers’ earnings.
• Domestic Policy: The sugarcane subsidy is a matter of domestic policy, with the Indian government determining the extent of support for sugarcane farmers. This decision carries implications for the broader agricultural sector and the overall economy.
• High Export: Through subsidies, including export subsidies, India has been able to export substantial amounts of sugar in recent times. This has assisted in diminishing surplus stocks and enhancing the financial liquidity of sugar mills.

Way Forward

• Transparency in data: India must improve transparency in reporting sugarcane subsidies to the WTO. Ensuring adherence to global trade regulations is vital to prevent disputes and maintain credibility in international trade.
• Policy Reforms: The Indian government might consider revising its sugarcane subsidy policies to align with WTO standards. This could entail adjusting the Fair and Remunerative Prices (FRP) and State-Advised Prices (SAPs) to ensure compliance with international trade agreements.
• Dialogue and Diplomacy: Engaging in constructive dialogues with nations like the US and Australia can address concerns over sugarcane subsidies. Negotiating mutually agreeable solutions can prevent prolonged disputes and foster improved trade relations.
• Diversification and Innovation: Encouraging agricultural diversification and fostering innovation within the sugar industry can decrease reliance on subsidies. Investments in research and development for sustainable practices can enhance competitiveness in the global market.
• Capacity building of farmers: Strengthening the capacity of sugarcane farmers to adopt modern agricultural techniques, enhance productivity, and improve quality can make the sector more resilient to market fluctuations. Training initiatives and technology access can enhance efficiency and competitiveness.
• Sustainability Planning: Formulating a roadmap for the long-term sustainability of the sugarcane sector is essential. Balancing the interests of farmers, industry, and trade commitments while ensuring environmental sustainability can establish a resilient and competitive sugar industry.

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Prelims based Question

Q1. Consider the following statements regarding WTO:

1. The majority takes all the decisions in the WTO.
2. WTO was established through the Marrakesh agreement.

Choose the correct answer using the codes given below:

1. 1 Only
2. 2 Only
3. Both 1 and 2
4. Neither 1 nor 2

ANSWER: B

Mains Based Question

Q1.Analyze the obstacles India faces due to its subsidy concerns under WTO’s Agreement on Agriculture (AoA), and discuss the necessity of finalizing the Doha Round negotiations. Explore how India can steer towards a long lasting resolution to tackle its food security worries while protecting the welfare of its farmers.

Vikas Agarwal