Sugar, sugar everywhere…not a grain to ship

(Chuck Muth) – Critics of the U.S. sugar program continue to bang the drums of repeal up on Lake Wobegon, where all sugar farmers are exceptionally productive and compete in a totally free market with no outside interference by any governments anywhere.

We now return you to Planet Reality…

India’s government forces Indian sugar mills to pay Indian farmers a set price for sugar which is significantly higher than the market price.  As such, Indian farmers continue to crank out more sugar than the market needs.  This has resulted in a glut of Indian sugar that Indian sugar mills can’t sell in India – the world’s #2 producer of sugar.

So Indian sugar mills want to unload some of its surplus by exporting it to other countries.  However, since the mills paid more for the sugar than what the sugar is worth, the prices they have to charge to potential importers is much higher than the global price charged by, say, Brazil, the world’s #1 sugar producer, which significantly subsidizes its own sugar industry.

So the Indian government has decided to provide a new subsidy to Indian sugar mills so they can export their surplus of sugar for a price lower than what they would otherwise have to charge thanks to the above-market price they were forced to pay Indian farmers for the raw sugar.

Alas, even the new hand-out provided to mills by the Indian government wasn’t enough to allow Indian exporters to compete in the global market and unload its sugar surplus.  So according to a recent report by Reuters, “India’s top sugar-producing state of Maharashtra is considering and extra 1,000 rupees ($16) per tonne subsidy for exports of raw sugar.”

And even that might not be enough to alleviate the problem.

You see, last year India was able to unload some 500,000 tons of its sugar surplus to rogue nation Iran since Iran was able to pay for it with rupees it earned from selling oil to India. Iran has not been able to pay for sugar imports with dollars thanks to sanctions imposed due to its controversial nuclear development program.

But according to Reuters, those sanctions are easing; meaning Iran will soon be able to buy sugar on the open market again…including cheaper sugar from Brazil’s heavily-government-subsidized sugar industry.  Iran will no longer be forced to buy from India.

This could well result in India’s sugar glut getting worse, not better…which will likely mean more, not less new sugar subsidies to India’s sugar farmers and mills.  Which is why the current U.S. sugar program is still needed.  Because our hometown sugar producers aren’t competing in Lake Wobegon.  They’re competing in the real world.