Raw sugar imports likely to affect prices in local markets

The domestic production of sugar for the season ended September 2008 will see a surprisingly big fall to less than 18 million tonnes from 26.328 million tonnes in 2007-08. That there will be a setback of some orders was not unexpected.

Miffed with the delay in payment of cane bills for long, farmers switched to other crops such as wheat and rice in Uttar Pradesh and elsewhere.

Initially, we were given to understand that the lower cane crop, resulting mainly from land diversion would restrict sugar output to 21-22 million tonnes. At the December committee meeting of the Indian Sugar Mills Association (ISMA), the production was estimated at 19.5 million tonnes.

ISMA Director General S L Jain says cane crushing factories are experiencing a progressive deterioration in sugar recovery. Mind you, this is happening in the busiest part of the mill operations. In the last five seasons, the cane crushing period (weighted average basis) ranged from 113 days to 152 days, depending on the crop size.

The combination of a short crop and a fall in the sugar recovery rate of up to 1 per cent, manifest mostly in Uttar Pradesh and other northern states, is threatening to take us back to 1998-99, when sugar production was at 15.54 million tonnes. But is not there something puzzling about the recovery rate fall of this season’s order?

According to Jain, what is harming sugar recovery was the “aggressive use of priponil, a reagent insecticide chemical by cane growers for the crop now being harvested”. The chemical’s application has the effect of allowing the growth of the plant more than usual, but at the same time “ensuring translocation of a lower level of sugar into stalks”.

What is also going to prove harmful for the sugar economy, though evidently not for farmers as of now, is the regular use of priponil, which would disturb the normal process of plant growth by delaying crop maturity. Industry official Om Prakash Dhanuka explains that the “propensity” of the farmers to use the chemical on a large scale is because of their attempt to compensate for the low acreage this time by raising cane yield without caring for the loss of sucrose content in cane.

A sample analysis of the cane supplied to a mill in western UP has confirmed large-scale use of the chemical, thanks to the sanction given by the UP Council of Sugarcane Research. Supply of heavier than usual weight cane but woefully short on sugar recovery is proving burdensome for crushing mills.

“Finding a solution to the problem is not going to be easy since there is a revenue angle embedded here. But what can obviously be attempted is a weight-cum-quality system that will decide the prices of cane brought to factory gate by the farmers.” Obviously, the opportune time to try this out will be the harvest season.

At this point, the biggest concern for sugar mills is the sustained campaign by interested groups to allow imports of raw sugar. Most of these mills lost heavily last season on their operations – profits earned from power cogeneration and ethanol sales could set off overall losses only to a limited extent.

Any move to this effect will readily have the double impact of depressing local sugar prices, which will finally compromise the interest of growers and sending the commodity price in the world market up.

In the eyes of the sugar mills, the principal suspect in sustaining the import campaign is institutional buyers who account for as much as 76 per cent of the 22.5 million tonnes of domestic sugar consumption, according to Jain.

As there is little appreciation in the government that “decent returns from sugar sales” benefit all stakeholders, including farmers and householders, import fears continue to nag the industry.

“In fact the misconception of sugar’s impact on a householder’s budget is the reason why this commodity is given an unduly large weightage in the wholesale price index. All distortions start from there,” says Dhanuka. This is the reason why the government has from time to time found to be mindlessly using the sugar release mechanism as a market intervention weapon.

The country began the current season with comfortable sugar stocks of a little over 8 million tonnes, which should see us through the first five months. Yes, imports will be needed, but only when the season will be nearing the end.

In the meantime, what needs to be ensured is that the mill capacity to settle cane bills promptly is not compromised in any way. As of now, mills are not able to recover the full cost of making sugar from the ex-factory prices of the commodity. Have we not seen during last season how mounting uncleared cane bills impacted the cane crop?