India is no longer allowed to use heavy subsidies on sugar to promote exports. That is the conclusion drawn by the World Trade Organization (WTO). That is good news for the global sugar market, which is already in a positive flow. Raw sugar prices are moving (again) at a high level.
The sugar market was confronted with particularly cheap sugar from India for the first time in the 2014/2015 season. Production in the country grew many times faster than domestic consumption. The government was forced to introduce export subsidies to prevent the sugar mountain from swelling further. A reason for Brazil, Australia and Guatemala to file an objection with the World Trade Organization in 2019.
According to the three countries mentioned, India would violate WTO rules and provide disproportionate support to sugar farmers and factories. This would have created an unfair competitive advantage. On Tuesday, December 14, the trade organization ruled in favor of Brazil, Australia and Guatemala. India must withdraw the subsidies - which according to the World Trade Organization may not exceed 10% of the production value - within 120 days.
Subsidies not necessary
Ironically, the statement comes at a time when India plans to have no subsidies at all this year. With global sugar prices at their highest point in more than five years, India does not need the subsidies to export sugar. The need for subsidy is also likely to be minimal in the longer term, because India is now a... strong ethanol policy carries.
In November, the Indian government announced that it would be investing heavily in the production of ethanol as a fuel in the coming years. Within five years it wants to have a 20% share when it comes to mixing ethanol with gasoline. The raw material used for the production of ethanol is sugar cane. This means that there will be significantly less sugar cane available for sugar production in the coming years.
Less sugar available
India expects to export around 2022 million tonnes of sugar this season, which runs until September 5,5. This means that the sugar exports of the number two in the world will shrink by more than 20% compared to last season. The world's largest sugar exporter, Brazil, is also pumping less sugar into the world market this year. Not only because of disappointing harvests, but also because ethanol prices are high. Here too, it is attractive to allocate more sugar cane for the production of ethanol instead of sugar.
There are also countries and continents that have more sugar available, including Thailand (+2,4 million tons) and the European Union (+0,8 million tons). The Netherlands does not contribute to this. Production here is slightly lower than last year, due to a smaller area and lower yield. However, the yield is slightly higher than previously predicted, namely 16,7 tons of sugar per hectare. At the beginning of this week, 33% of the sugar beet area still had to be harvested.
Shortage continues and drives up prices
The countries that have more sugar available this season cannot close the gap with shrinking countries. This is also because global consumption is growing. The International Sugar Organization (ISO) assumes that there will be a global shortage of 2021 million tons of sugar at the end of 2022/2,6. It ensures that prices worldwide maintain their high levels.
The omikron variant of the coronavirus put some pressure on the sugar market at the beginning of this month. When it became clear that omikron spreads quickly, but that the symptoms are less severe, recovered the market is developing quite quickly again. This can also be seen on the Liffe in London. The closing price has been well above €450 per ton for another week. Market experts predict that this high price level will continue next year and that is not surprising given international developments.