North Block against sugar exports

A difference of opinion between the ministries of finance and agriculture on exports has driven mill owners to seek a meeting with Prime Minister Manmohan Singh in a year that is likely to see a glut of sugar.

The Cabinet today deferred a decision on the issue. Sugar mill owners will meet Agriculture Minister Sharad Pawar on Saturday.

Tamil Nadu and Uttar Pradesh have had a bumper sugarcane crop. Farmer agitations for higher cane prices have already gripped Maharashtra.

Mill owners said they were behind in paying farmers, even those mills which never had a history of delinquency. They warned they would simply stop buying cane if they were forced to pay a higher price and could even close the mills, unless the government allowed export of sugar.

A ban on sugar exports was imposed in June this year and despite pressure on the government, it has not been lifted. Indian Sugar Mills Association Director-General SL Jain predicts that companies will not be allowed to export sugar anytime soon.

The reason is the finance ministry's logic that sugar is too high on the wholesale price index to risk driving up prices, which could lead to higher inflation. Sugar is weighted higher on the wholesale price index than even diesel.

Finance Minister P Chidambaram has already stated several times that the current inflation rate of 5.41 per cent is driven by the high prices of primary articles. He wants retail prices of sugar to come down.

Sugar mill owners say retail prices have nothing to do with them. By February-March next year, India will have produced 23.5 million tonnes of sugar against an estimated consumption of 19 million tonnes.

Already, there is a buffer stock of around 4 million tonnes. According to industry sources, this is more than enough to keep prices stable.

Due to a good crop generally, sugar mills are running to full capacity.

Godowns are packed with sugar. Inventories are causing fresh problems. Sugar is hygroscopic and can coagulate if kept too long. It also tends to yellow and needs rechlorination. All this is adding to the sugar mills' costs.

Mill owners say traders are in no hurry to lift stocks as they are confident prices will fall.

The politics of sugar and how it will impact the fortunes of political parties is obvious. The Uttar Pradesh government gives a subsidy to sugar mill owners in the form of paying for its movement up to a distance of 600 km from the state's borders.

Analysts say Uttar Pradesh sugar will soon flood the Maharashtra market if mills stop buying at the prices farmers are demanding. As the entire political spectrum of Maharashtra has interests in sugar, it remains to be seen how the Centre will respond.

Mill owners say in a year in which the world outlook for sugar is glut, a delay in a decision on exports could be disastrous.