Brazil and Australia are joining forces to fight India’s subsidisation of cane growers by lodging a formal dispute action in the World Trade Organisation.
Dispute actions can take years to resolve through the WTO process, but Trade Minister Simon Birmingham said negotiations had failed and Australia had no other options.
Last year India extended financial support to its canegrowers. Domestic production rose in excess of local consumption and exports ensued.
Global prices are expected to remain depressed. India is forecast to export 4 million tonnes of sugar this year.
Brazil and Australia argue that India's subsidies artificially depress the market and breach WTO rules.
"Last year we saw around $1 billion of additional new subsidies to Indian sugar farmers and we understand that there are many pressures on the Indian sugar farming industry, and we understand their desire to support their farmers," Mr Birmingham said.
"But these WTO-inconsistent practices are really hurting our farmers and those elsewhere around the world, and that is why we are going down this path."
Canegrowers chairman Paul Schembri welcomed the government’s action.
“A WTO dispute is a rare and significant escalation towards resolving a situation that’s been depressing the global sugar price and the earnings of Australian sugarcane growers and sugar millers,” he said.
Australian Sugar Milling Council chief executive David Pietsch said India’s subsidies depressed the global market and had a direct impact on the profitability of Australian growers and millers.
“The analysis we jointly developed with government paints a strong case against Indian sugar support mechanisms. India’s sugar subsidies are a clear breach of its WTO obligations,” said Mr Pietsch.
In September last year India’s federal government announced a $1 billion funding package to help millers export sugar, which came in addition to a previous round of domestic industry assistance.
A general election is due by May this year and India’s government is looking for a political fix for the financial hardship faced by tens of millions of people in canegrowing families.
In early 2018 the government set a floor price for cane, and farmers’ output shot up from an annual average of 20mt a year to more than 30mt.
This plunged the customers of growers, the sugar mills, deep into debt.
Unpaid dues to farmers by sugar millers hit $4m in May, which is a significant sum considering 85 per cent of farmers own less than 2 hectares of land and earn $1500 a year.
To help millers, transport subsidies are available to millers further than 100 kilometres from the coast – to encourage them to cart cane for export.
The government will also subsidise millers per tonne of processed cane, with payments going directly to farmers with unpaid dues.