Should India export at risk of fuelling sugar prices at home?

t takes two to tango. This for a much welcome change is happening in the country’s sugar economy. The industry, represented by Indian Sugar Mills Association (Isma) and National Federation of Cooperative Sugar Factories is showing much better appreciation than ever before, of the caution the government must exercise before making any policy changes for sugar, an oversensitive commodity. The recent good vibes between the government and industry may largely be because of the emerging new leadership in Isma, ready to see the official point of view.

Both the government and sugar producers came for upbraiding earlier this year when sugar became unaffordable for the common man. The traumatic experience for the major part of 2009-10 sugar season, which opened with low stock of 4.4 million tonnes and with forecast of another bad sugar production of around 15 million tonnes laid the ground for the food and agriculture ministry and the industry to give up trading charges and start working in unison. In a fine gesture, Sharad Pawar recently praised the industry for giving 20 per cent of sugar production as levy during 2009-10 against official requirement of 10 per cent.

When this arrangement was agreed upon to enable the government to push greater volume of sugar through the public distribution system, the assumed sugar production for last season was considerably less than the final tally of 18.9 million tonnes. The cost to the industry for this gesture was not insignificant since levy sugar price is worked out on the basis of fair and remunerative price (FRP) for cane and not what mills actually pay to farmers on advice of states.

As supply concerns have eased, the government will be collecting 10 per cent of the industry’s production as levy in the season which began on October 1. Not only has this transition happened smoothly, a welcome change from the past, but it did not take Isma much time in convincing the government that the departmental proposal to peg levy load at 12.5 per cent is not justified in the present circumstances.

Food price inflation caused largely by truant behaviour of weather has remained a major embarrassment for the government and sugar because of the unjustifiably large weightage of 3.6 per cent in the wholesale price index (WPI) imposed on it in a bureaucratic misjudgement unwittingly became a target of public wrath. No doubt Pawar, who knows his sugar as well as anybody, has a hand in bringing down weightage of sugar to 1.74 per cent in the revised WPI, in operation since September 2010.

In the complex sugar economy, the biggest stakeholder is the farmer community. Farmers have their price expectation and in the fulfilment of the reasonable part of that the country has the key to bringing in more land under cane, raising crop productivity and finally increasing sugar supply. No doubt this was the message Pawar gave when recently speaking at a farmers’ gathering at Ahmednagar in Maharashtra he espoused the cause of exports dismissing the “urban concern” about its fallout on domestic sugar prices. He also didn’t fail to remind us of the uncomfortable truth that we get our sugar at the world’s lowest prices.

Didn’t Pawar suggest that farmers getting a fair deal depended on India selling surplus sugar in the world market? At the same time, our state level politicians will do well to realise that forcing mills to pay unreasonable prices for cane could only harm the sugar economy. And why should there be an occasion for a state level association of mills to go to the court for redressal of grievance against arbitrarily fixed state advised price?

World sugar prices for both raws and white have climbed to their highest since early 1980s on expected supply shortfall in the face of Brazilian harvest tailing off sharply as many other major growing countries have suffered crop setback. According to the Brazilian sugar industry association Unica, the country’s production was down 30 per cent in the first half of October on a year-on-year basis. Since Brazil alone accounts for nearly half of world sugar exports, a shortfall there becomes difficult to be made good by supplies from other sources. Besides the Brazilian factor and expectations of possible shipments from India going down, the tide of liquidity sweeping into the commodity has pushed prices at ICE and Liffe to the current level.

It is not anybody’s case that India should export sugar at the risk of fuelling domestic prices to a level that may cause public anger. But to the extent we sell sugar in foreign markets early this season, our mills will benefit from handsome premiums that world prices are commanding over local prices.

Exports no doubt will empower mills to pay “actual fair” prices for cane, but certainly not to the extent that farmers in some growing centres are pitching for. Ideally, there should be a formula for sharing of revenue from sale of sugar and its principal byproducts like molasses and bagasse between mills and cane growers. Hopefully, C Rangarajan committee will come up with an equitable formula.

source: business-standard