Government of India announced subsidy scheme to boost sugar exports due to surplus stocks. The sugar stocks estimated at around 14.5 million tonnes for 2019-20 season.
On August 28, government announced Rs 6268 crore sugar export subsidy scheme to increase sugar exports. Government target sugar export is at 6 million tonnes for FY 2019-20. Subsidy of Rs 10.44 per kg provided to sugarcane farmers that is lower than subsidy of 11.5 per kg provided in FY 2018-19.
The subsidy will be credited directly into farmers accounts on behalf of mills against the cane dues. Further, subsidy cover marketing costs which incorporates handling, upgrading, other processing costs, international and domestic transport charges.
The subsidy also provides INR 10,448 per ton of sugar to sugar mills for this season i.e. from October 2019 to September 2020.
Buffer Stock
Taking into account the enormous pile of sugar stocks, the government created a buffer stock of 4 Million Tonnes of sugar for one year starting from 1st August, 2019. Taking buffer stock into consideration, India currently has stock to meet domestic demand till 31st of July 2020. After employing sugar for production of ethanol there would be excess stock left which would require to be exported.
Subsidies Increasing Exports
In 2018, government provided various subsides for exports of sugar. That resulted in an estimated sugar export of 3.8 Million Tonnes. Industry experts now expect subsidies to further boost exports this season. According to Crisil Research, Indian sugar export may rise by 20% due to government subsidies.
Indian subsidies upset Brazil, Australia and other exporters
Australia, Brazil and Guatemala jointly requested WTO to set up a panel to challenge Sugar subsidies by India. As the prices of sugar has sink to an all time low in 11 months, competition from India adds to the problems of other producers.
Also, India expects to export its stock before the Brazilian harvest produce arrives in April 2020.
India may witness 10% decline in sugar production next year
The production of cane sugar may decrease next year because of the extreme weather conditions in leading producers Maharashtra and Karnataka which will subsequently lead to decline in cane acreage.
As of now the subsidies seem to accelerate exports. However, traders believe that given the present subdued prices of sugar at international market, traders may make losses on its export.