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Wrong focus

Over-regulation and muddled policies have disturbed market dynamics for sugar sector

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Business Standard New Delhi
Last Updated : Jan 29 2013 | 3:14 AM IST

The sugar sector has for long been the victim of over-regulation and muddled policy regimes. This has led to needless government action that has disturbed market dynamics, and perpetuated an unhealthy cycle of ups and downs in both production and prices. Sugarcane growers, too, are mostly left displeased as a consequence of this yo-yo economics. The situation today is no different. Although the ebbing phase of the sugar cycle has set in, supply (when counted with the substantial opening stocks) continues to be well in excess of demand; yet a needless controversy has been stoked by the proposal to import raw sugar, when attention should have been focused on the real issues of deregulation, decontrol and rational cane pricing. The demand by a section of the industry to ease import norms and allow tonne-by-tonne re-export, rather than the present grain-by-grain re-export, after refining has left the industry divided and the government nonplussed. The food minister, Sharad Pawar, instead of setting speculation at rest on this count, has added to the uncertainty by not taking a clear stand at the annual meeting of the Indian Sugar Mills Association (ISMA) on Monday.

The factual position is that the country does not, at this point of time, need to import raw sugar at zero duty, not even for re-export after converting it to white sugar, considering the present fine equilibrium between demand, stocks and the production in the 2008-09 sugar season that began from October. Even if, as indicated by Mr Pawar, sugar output turns out to be below the earlier official reckoning of 22 million tonnes because of relatively low cane availability and sugar recovery, the year is likely to end with a robust carry-forward stock. Even in the worst conceivable scenario — marked by less than 20 million tones of output, against over 26 million tonnes last year, and enhanced consumption of over 22 million tonnes, against less than 21 million tonnes last year — the season would end with a surplus of at least 4 to 5 million tones, thanks to the cushion provided by the opening stock, estimated variously at between 7 and 10 million tonnes.

The consequences of import liberalisation, on the other hand, could be unsavoury for both the sugar industry and cane growers, though consumers — chiefly bulk consumers like soft drink manufacturers who account for 65 to 70 per cent of total sugar consumption — might benefit from the resultant price fall. Any drop in the price realisation of the industry when sugar recovery is also low can only erode the mills’ capacity to make timely cane payments, leading to re-accumulation of arrears to the detriment of the cane growers. That such a situation would be far from conducive for reversing the downturn in cane output is obvious, more so because it would coincide with the next cane sowing season.

Instead of politicking over sugar, the government would do well to ponder over the pertinent policy issues and ensure lasting growth of the sugar sector. If, for some reasons, the government cannot go for total deregulation and decontrol of this sector, it should at least consider the sugar industry’s plea for setting up an independent regulatory body, similar to the telecom body, to look into the issues of cane pricing and allocation of sugarcane to different factories in a dispassionate and apolitical manner.

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First Published: Dec 26 2008 | 12:00 AM IST

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