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Sugar subsidy policies in Pakistan and India raise concern among Brazilian farmers

São Paulo, April 2018 – The Brazilian Sugarcane Industry Association (UNICA) is concerned with the increase of sugar exports from Pakistan, which are subsidized by the local government.  This kind of action causes distortion in international commercial practices and directly impacts the price of the product, which has been falling again since January 2017.

According to United States Department of Agriculture (USDA), the main producers, between 2010/11 and 2016/17 Brazil’s, Europe’s and China’s harvest seasons, showed decrease in sugar production following the international price trend. On the other hand, Pakistan had an average increase of 5.9% per year over the same period. Sugar stocks went from 1.4 million in the 2016/17 harvest season to 2.1 million in the 2017/18 harvest season, and production is likely to reach a total of 6.5 million this season, which closes in September.

In order to sell off its production surplus, the Pakistani government has adopted a number of measures such as guaranteed minimum prices for sugarcane, sugar protectionist import tariff of 40%, subsidized transport costs and domestic freight, reduced export taxes, and set up export quotas. These measures contributed to maintaining the sugar prices on the domestic market, which are higher that the international ones.

In September 2017 an export incentive of up to 1.5 million ton of sugar was registered, with a subsidy of US$ 102 per ton; or better said, 34% of the sugar price, taking into consideration the current price of US$ 300 per ton.

At the beginning of this year, the Brazilian government questioned Pakistan on these practices at the Agriculture Committee in Geneva, with support from Australia and the European Union.  For now, the intention is to deal with this issue bilaterally, while monitoring any action closely.

Imminent subsidy from India
Brazil is also concerned with India’s commercial practices.  Expected production in the 2017/18 harvest is 29.98  million tons of sugar, according to Indian Sugar Mills Association (ISMA); 92,5% more than in the previous harvest or 74% more than the 2015/16 harvest, when the country approved subsidies of INR 4.50, or USD 0.07 for each 100 kg of crushed sugarcane. Local market data also shows export subsidies in the 2013/14 and 2014/15 harvests, which affected 4 million tons of sugar.

With a surplus in domestic supply this harvesting year, India eliminated an export tax of 20% and made it compulsory for mills to export at least 2 million tons of product. The federal government has also allowed exporting mills to import raw sugar exempted from tariffs until 2021.

Guaranteed prices of sugarcane on the internal market together with a scenario of low prices on the international market, impact the competitiveness of Indian sugar abroad.  Thus, exporting becomes viable only when subsidies are granted to make up for the transport, freight and distribution costs on the national market. This measure has been applied by the government in low-sugar-price years on the international market.

According to Eduardo Leão, executive director of UNICA, the recovering of production in the 2017/18 harvest and low prices on the international market might result in the announcement of a new subvention to sugar exports, which, will make the product more competitive on the international market, but will also have the effect of controlling the supply and guaranteing higher prices on the domestic market.  “The distorted export practices of Pakistan and India put world sugar trade at risk, and this has a direct impact on prices and harms the producers who follow the rules of the World Trade Organization (WTO),” he commented.

Brazilian Sugarcane Industry Association(UNICA – www.unica.com.br) represents the main sugar, ethanol and bio-electricity production units in the South-Central region of Brazil, mainly in the State of São Paulo. The mills associated to UNICA are responsible for more than 50% of national sugarcane production, 60% of ethanol production and nearly 70% of the bio-electricity supplied to the National Grid System (SIN in Portuguese). In the 2017/18 harvest, Brazil produced approximately 596.31 million tons of sugarcane, the raw material used for producing 36.05 million tons of sugar, 26.09 billion liters of ethanol and 21.4 TWh for the National Electricity Grid. 

Further information to the press  

UNICA Public Relations agency

Licia Martinez | (55 11) 3643-2762 | licia.martinez@cdn.com.br

Henrique Rodrigues Alves | (55 11) 3643-2736 | henrique.alves@cdn.com.br


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