The Political Economy of Sugar Export Curbs : Daily Current Affairs

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment, Inclusive growth.

Key Phrases: Inflationary pressures, ever-increasing export shipments of sugar, supply-chain disruptions, curbing speculative trading, food diplomacy, WTO Agreement on Agriculture, Agreement on Subsidies and Countervailing Measures, escalation of ethanol blending

Why in News?

The government has decided to restrict sugar exports after the wheat export ban, setting a cap of 10 million tonnes (mt) for the current marketing year of the sugarcane crop.
The Directorate General of Foreign Trade (DGFT) has notified the ban on the export of sugar from June 1, 2022 beyond the quota limit.

Key Highlights:

The government has moved the export of sugar from the open category, which requires no government intervention, to the ‘restricted’ category.
This means that the export of sugar is allowed only with specific permission from the Directorate of Sugar, Department of Food and Public Distribution (DFPD), Ministry of Consumer Affairs, Food & Public Distribution.
Also, the curbs came into effect from June 1, 2022 and will continue till October 31, 2022 or until further orders.

Reasons for a ban on Sugar Export:

Price stability and domestic availability:
- To ensure domestic availability and price stability under rising inflationary pressures.
- It is aimed at orderly trade in the context of ever-increasing export shipments of sugar breaching the previous records of more than 7.2 mt.
Threat of food crisis:
- The government is concerned over the threat of a food crisis caused by supply-chain disruptions.
Food diplomacy:
- Export restriction is also aimed at supplying sugar to countries in economic distress, and friendly nations thus increasing India’s diplomatic outreach along with curbing speculative trading.
WTO pressures:
- India has lost a sugar subsidy dispute against Brazil, Australia, and Guatemala in the WTO.
- The WTO has advised India to withdraw its sugar subsidies as they are not consistent with the WTO Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”).
Escalation of Ethanol Blending:
- The government intends to encourage ethanol blending.
- India is about to touch the target of 10 percent ethanol blending, with 9.99 per cent already achieved in March, 2022.
- National Policy on Biofuels was amended on May 18, 2022 by approving the decisions of the National Biofuel Coordination Committee (NBCC).
- One decision is to advance the ethanol blending target of 20 percent in petrol to Ethanol Supply Year (ESY) 2025-26 from 2030.
- India took a cue from Indonesia and Brazil which have respectively increased the blending of biofuel by 30 percent and 20 percent to deal with burgeoning energy prices.
- In fact, ethanol is cheaper, costing around ₹65 per litre in comparison to petrol of around ₹96.
- Recognising these challenges, utilising sugar for ethanol will serve two purposes:
  - Reducing the burden of ever-increasing crude oil imports at high prices
  - Reducing the burden of export subsidy and potential trade disputes at the WTO.
- The export ban is also aimed at enhancing the use of domestic sugar molasses for ethanol production.
Huge Subsidy Cost to Exchequer:
- India has been offering subsidies on the export of sugar as the Indian sweetener is priced out in international markets, thus costing the exchequer.

Do you know?

The Agreement on Agriculture (AoA) is a World Trade Organisation (WTO) treaty that was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and formally ratified in 1994 at Marrakesh, Morocco. The AoA came into effect in 1995.
It is aimed to:
- remove trade barriers and to promote transparent market access and integration of global markets and
- reduce the agricultural support and subsidies given to domestic producers by countries.
It is one of the most contentious agreements within the WTO.
WTO’s Agreement on Subsidies and Countervailing Measures
- The WTO Agreement on SCM disciplines the use of subsidies, and it regulates the actions countries can take to counter the effects of subsidies.
- Under the agreement, a country can use the WTO’s dispute-settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (“countervailing duty”) on subsidised imports that are found to be hurting domestic producers.

Salient Features of the National Policy on Biofuels 2018
(as amended in May, 2022)

To allow more feedstocks for the production of biofuels.
To advance the ethanol blending target of 20% blending of ethanol in petrol to ESY 2025-26 from 2030.
To promote the production of biofuels in the country, under the Make in India program, by units located in Special Economic Zones (SEZ)/ Export Oriented Units.
The Policy categorises biofuels as "Basic Biofuels" viz. First Generation (1G) bioethanol & biodiesel and "Advanced Biofuels" - Second Generation (2G) ethanol, Municipal Solid Waste (MSW) to drop-in fuels, Third Generation (3G) biofuels, bio-CNG, etc., to enable the extension of appropriate financial and fiscal incentives under each category.
The Policy expands the scope of raw material for ethanol production by allowing use of Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum, Starch containing materials like Corn, Cassava, Damaged food grains like wheat, broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.
Farmers are at risk of not getting the appropriate price for their produce during the surplus production phase. Taking this into account, the Policy allows the use of surplus food grains for the production of ethanol for blending with petrol with the approval of the National Biofuel Coordination Committee.
With a thrust on Advanced Biofuels, the Policy indicates a viability gap funding scheme for 2G ethanol Bio refineries of Rs.5000 crore in 6 years in addition to additional tax incentives and a higher purchase price as compared to 1G biofuels.

What is the current status of the Country’s Sugar Output?

The country’s sugar output is expected to touch a record 35.5 mt. Hence, the argument that export curbs will enhance domestic supplies and cool inflationary pressures has limited merit.
It is reported to be holding stocks of 6-7 mt from the previous marketing year.
India’s sugar industry is upbeat on a bumper production with Skymet and IMD predicting a normal monsoon.
The data of sugarcane sowing from all prime producing States Uttar Pradesh, Maharashtra, and Karnataka vindicates the satisfactory trends, supported by both manual feeding of sowing data and validated by the Global Positioning System.
The production, stock-holding and consumption data (27-28 mt) indicates that there is an adequate supply of sugar in the country.

Conclusion:

The enhanced production of ethanol supports farm income, offers a cheaper fuel solution, lower dependency on fossil fuels, and reduces pollution as ethanol is non-toxic and biodegradable.
Further, it will develop an ecosystem of enhanced production of biofuels thus supporting the farm income, a sector which is widely distressed.

Source: The Hindu BL

Mains Question:

Q. The government has decided to restrict sugar exports moving the export of sugar from the open category, which requires no government intervention, to the restricted category. Discuss the reasons for the ban as well as its potential impact on the developmental goal of a sustainable economy. (250 words).