India has appealed against a ruling of the World Trade Organisation’s (WTO) trade dispute settlement panel on domestic sugar subsidies, stating that the panel had committed “certain errors of law” in its report.

What is the case?

• India’s Minimum Selling Price system for Sugarcane was brought to notice to the WTO by Brazil, Australia and Guatemala.

What was the complaint against India?

Australia, Brazil, and Guatemala said India’s domestic support and export subsidy measures appeared to be inconsistent with various articles against WTO’s:

1. Agreement on Agriculture
2. Agreement on Subsidies and Countervailing Measures (SCM)
3. Article XVI (which concerns subsidies) of the General Agreement on Trade and Tariffs (GATT)

• Domestic Support: All three countries complained that India provides domestic support to sugarcane producers that exceed the de minimis level of 10% of the total value of sugarcane production.
• Various subsidies: They also raised the issue of India’s alleged export subsidies, subsidies under the production assistance and buffer stock schemes, and the marketing and transportation scheme.
• Notifying support: Australia accused India of “failing” to notify its annual domestic support for sugarcane and sugar subsequent to 1995-96, and its export subsidies since 2009-10.

India’s reply to WTO panel

• India rejected the panel’s findings as “erroneous”, “unreasoned”, and “not supported by the WTO rules”.
• It argued that the requirements of Article 3 of the SCM Agreement are not yet applicable to India.
• It has a phase-out period of 8 years to eliminate export subsidies under the agreement.
• India also argued that its mandatory minimum prices are not paid by the governments but by sugar mills, and hence do not constitute market price support.

Backgrounder: Sugarcane Pricing in India

Who determines Sugarcane prices?

Sugarcane prices are determined by the Centre as well as States.

1. The Centre announces Fair and Remunerative Prices which are determined on the recommendation of the Commission for Agricultural Costs and Prices (CACP) and are announced by the Cabinet Committee on Economic Affairs, which is chaired by Prime Minister.
2. The State Advised Prices (SAP) are announced by key sugarcane producing states which are generally higher than FRP.

Minimum Selling Price (MSP) for Sugar

• The price of sugar is market-driven & depends on the demand & supply of sugar.
• However, with a view to protecting the interests of farmers, the concept of MSP of sugar has been introduced since 2018.
• MSP of sugar has been fixed taking into account the components of Fair & Remunerative Price (FRP) of sugarcane and minimum conversion cost of the most efficient mills.

Basis of price determination

• With the amendment of the Sugarcane (Control) Order, 1966, the concept of Statutory Minimum Price (SMP) of sugarcane was replaced with the Fair and Remunerative Price (FRP)’ of sugarcane in 2009-10.
• The cane price announced by the Central Government is decided on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
• This is done in consultation with the State Governments and after taking feedback from associations of the sugar industry.

What is FRP?

• FRP is fixed under a sugarcane control order, 1966.
• It is the minimum price that sugar mills are supposed to pay to the farmers.
• However, states determine their own State Agreed Price (SAP) which is generally higher than the FRP.

Factors considered for FRP:

• The amended provisions of the Sugarcane (Control) Order, 1966 provides for fixation of FRP of sugarcane having regard to the following factors:

a) cost of production of sugarcane;

b) return to the growers from alternative crops and the general trend of prices of agricultural commodities;

c) availability of sugar to consumers at a fair price;

d) price at which sugar produced from sugarcane is sold by sugar producers;

e) recovery of sugar from sugarcane;

f) the realization made from the sale of by-products viz. molasses, bagasse, and press mud or their imputed value;

g) reasonable margins for the growers of sugarcane on account of risk and profits.

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