Santa’s Christmas gift to Indian sugar mills

(Chuck Muth) – Opposition to the current U.S. sugar program among free-marketers is understandable; however, one cannot escape the reality of worldwide direct subsidy programs that distort the free market making it not really a free market at all. The latest example…

On December 20, 2013, India’s Cabinet announced that it had approved “a scheme of interest-free loans to sugar mills as part of a bailout package to beleaguered mills.”

And not only are the loans interest-free, but they can be paid back over a period of five years “with a moratorium on payment for the first two years.”

Plus “other aid measures” are in the pipeline for action in the near future.

SWEET!

Indeed, on December 31, 2013, Reuters reported that “India could soon boost exports of raw sugar at the expense of top suppliers Brazil and Thailand as the government looks likely to give cash-strapped mills financial help for production so they can pay farmers” the government-set prices even as the global glut of sugar has reduced local prices to a 3 ½-year low.

Read that again…

The subsidies being provided to the mills is to help them pay the government-mandated high price for sugarcane to farmers. In other words, the Indian government dictates that farmers must be paid ridiculously high prices – then subsidizes mills to help them pay the ridiculously high prices. In what universe is this considered a “free market”?

In addition, in what Reuters described as “a tortuous spiral of subsidies,” India intends to ratchet up its exports of raw sugar from mills while throttling back on the production of refined sugar in the hope of reducing its growing sugar stockpile.

What’s interesting here is that despite the “tortuous spiral” of new government subsidies for India’s sugar industry, analysts believe the nation is nevertheless going to have a tough time competing with Thailand and Brazil, which have their own lucrative government subsidy programs in place.

As emerging nations such as India continue to get richer and use its money to prop up its farmers even more, the need for a global initiative to end all government subsidies so the market can compare sugar to sugar rather than apples to oranges becomes increasingly more urgent.

Only a unilateral and simultaneous cease-fire on subsidies nationwide among ALL sugar producers can bring about a true free market. Until that time, Congress should continue the current U.S. sugar program.

(Mr. Muth is president of Citizen Outreach)