Cross-subsidies, export subsidies, cant!
The sugar sector is one of the important agroindustries, particularly in emerging and developing economies where its support to rural development is fairly important. Globally, the industry is not informed by a level playing field when it comes to aiding the domestic sector. Historically, practically all of the major players have enjoyed some level of protection and support. Brazil’s fledgling sugar industry began to expand dramatically soon after the Brazilian government initiated the National Alcohol Programme ‘ProAlcool’ in 1975 In response to rocketing oil prices in the ‘70s. The intention was to substitute gasoline with cane-based ethanol in automobiles. The effect of
the programme was to cross-subsidise sugar production.
Over the period 1990-2010, sugar production increased five-fold and sugar exports, 17-fold (see table). Prior to the reform of the EU’s sugar regime, the industry was nurtured to become globally competitive through variety of support. The growth of the Australian sugar industry has undoubtedly benefitted from the government supported research infrastructure which has arguably attracted several multi-nationals to buy local sugar companies. Therefore, the recent press reports that Australia is ganging up with Brazil to
fight the proposed Indian export subsidy through a formal complaint to the World Trade Organization (WTO) seems touch bit curious.
Brazil and Australia are the top first and third sugar exporters. While in absolute terms Brazil is over exposed in a depressed market, in relative terms, Australia exports bulk of the sugar it produces, around 75%, compared with 65% for Brazil. Both these exporters are currently feeling the pinch from the global sugar glut which has seen prices fall below the costs of production in these markets. Raw sugar prices in New York slumped to a 10-year low of 9.91 cents on August 22. Their domestic industries are clearly suffering. In Brazil, indebtedness in the sector is increasing and in Australia some cane growers are opting for other more profitable crops.
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