India Battling Sugar Subsidy Addiction

By Chuck Muth, President, Citizen Outreach

Writing for Business World, Urvi Shrivastav notes how tough it is to kick the government subsidy addiction once hooked.

India, the largest global sugar consumer and second-largest sugar producer, is sitting on a glut of sugar and payments from mills to farmers have been delayed.

“This is because, sugar mill owners have been saying, excess sugar production, along with decline in consumption, has depressed domestic sugar prices leading to accumulation of arrears.

“Since the mills are unable to garner profit, they are not able to pay fair and remunerative price to sugarcane farmers. The sugar prices are neither going up, nor are we seeing an increase in consumption.”

Market reality: Supply high, demand low, prices drop.

In order to get domestic prices up and pay farmers what they’re owed, the glut needs to go.

“An obvious solution to this issue,” Shrivastav continues, “seems to be an increase in export of sugarcane and sugar products.”  Which is exactly what they did last year.  However…

“The high export numbers last season were possible only due to the subsidy programme offered by the government.”

And instead of farmers producing less sugar to prevent another glut, the export subsidies have resulted in “sugar production rising in the country.”

Indeed, as Isaac Newton taught us, for every action, there is an equal and opposite reaction.  And the reaction this year by the Indian government was to “drastically reduce” the export subsidies, much to the dismay of the Indian Sugar Mills Association.

“The mills are now reluctant to export,” Shrivastav reports, “because of the huge gap between cost of manufacturing and the current price of raw sugar in international markets.”

This is what happens the government starts interfering with the free market.  And addictions to government subsidies are hard to break.

Which is why the new Biden administration should continue supporting the U.S. sugar policy of protecting American sugar producers – who get no government subsidies for production or export – from international competitors who do.