The Hindu Business Line : Sweeten the sugar policy

THE GLOBAL SUGAR market has been one of the most distorted of commodity regimes because of the fierce protectionism practised by some of the developed countries. That may become somewhat less distorted, following the recent World Trade Organisation ruling against heavy subsidies given by the European Union for the commodity. Coming soon after a similar decision against the US cotton subsidies, the sugar case is a further confirmation of the multilateral organisation's commitment to addressing wilful distortions in world trade. A complaint filed by Brazil, Australia and Thailand showed how massive financial support for production and export of sugar by the EU depressed prices and affected the livelihood of millions of producers in developing countries. Direct financial support granted to sugar producers by OECD countries has been rising over the last two years and stood at $7.1 billion in 2003 up from $6.3billion in 2002.

The WTO decree against the EU sugar largesse has no doubt provided a shot in the arm for sugar-producing developing economies which can now hope to increase their market share and obtain more realistic prices because starting next year the EU will have to reduce its sugar export by at least two million tonnes. This development will benefit Brazil, already the world's largest sugar producer-exporter. The flip side is, of course, that some of the African, Caribbean and Pacific countries with preferential access to the EU markets will find their privilege watered-down and they would begin to be exposed to competition. The WTO ruling notwithstanding, high tariffs and market access restrictions will continue to characterise the world sugar trade and the market will be far from perfectly free and transparent. As for India, the WTO ruling is indeed welcome insofar as it concerns reduction of trade-distorting subsidies on agricultural commodities and promotion of a climate to encourage free trade. But in the short-to-medium term it should be viewed as largely neutral for India as the domestic market is not really aligned to the world market, despite the fact that the country is the world's second largest producer and consumer of sugar.

The Indian sugar sector is undergoing cataclysmic changes with sudden downturn in fortunes — from an exporter until a few months ago the country has now become an importer, following a decline in domestic production. The sudden transformation shows how fragile and tenuous is the sugar economy is. Although the importance of the sugar sector in terms of employment, income and rural development is well documented, successive governments have failed to pursue genuinely growth-oriented policies for this major segment of the food-processing sector. The Government will have to demonstrate astute political will to insulate the sugar sector from political influence. Complete decontrol of the industry and removal of zoning restrictions on sugarcane alone will ensure investment on merit and orderly growth so that Indian sugar sector becomes globally competitive over time. A prompt positive decision is the need of the day.

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