Sharad Pawar’s unflinching interest in cricket is legendary. Being an aficionado of the sport, our agriculture minister will know well that while holding the bat, timing the ball well is all that matters. Had Pawar used this sense of timing in taking decisions on sugar, the country would have been spared much pain.
Public memory may be short, but it is not as short as for people not to recall how the country is muddling through with its policy pronouncements on sugar, particularly relating to cane price fixing and export and import of sugar. The masses found sugar prices particularly hurtful between December and February, resulting from initial reports of very low production and also very high prices paid for cane, the brunt of which fell heavily on factories in north India.
The challenge is one of calibrating policy, mainly pertaining to foreign trade part of sugar in tune with ground level reality which changes fast. To give the most recent example of how rapidly the world sugar market moves, raw sugar prices on New York ICE exchange fell at one point in May to 13 cents a pound from a 30-year high of 30.40 cents in early February. ICE July futures are now quoted at 14 cents. At the same time, white sugar on London Futures Exchange is down from a record high of $767 a tonne in January to $460.
Underlining the importance of India in the world sugar trade, Pawar said at the AGM of India Sugar Mills Association (Isma) that whenever the country would import the commodity, prices would spurt in view of the volumes involved. The opposite happens when the country has exportable surplus. This is as it has to be, India being the world’s largest consumer of sugar ahead of China and the second biggest producer of the commodity next only to Brazil.
Consider the volume involved in our foreign trade in sugar. In the three years since 2005-06 with regular bumper production, the country exported a total of 7.814 million tonnes of sugar. But the country had to import 2.5 million tonnes of sugar in 2008-09 when domestic production fell to a disastrously low of 14.6 milllion tonnes in 2008-09. In fact, what then saved the day for us were the season’s big opening stocks of 10 million tonnes. Imports in the current season to end in September are estimated to be 4.3 million tonnes.
We need to ask ourselves how appropriately we are timing the exim decisions to avoid domestic price collapse in a bountiful year and price surges raising the ire of public in times of crop failure. Should we not have applied the brake on imports when it became clear that the country is going to end the season with sugar production of around 19 million tonnes and not 15 million tonnes as feared earlier? Price collapse in the world market has made duty-free imported sugar cheaper than our domestic sugar production cost.
Is it not the government’s responsibility to ensure that the capacity of factories is not compromised so that they are able to settle cane bills in time? Otherwise farmers start migrating to other crops. Do we want a repeat of the scary 2008-09 scene which again visited us this season, though with less intensity. The point, however, is why this issue should come to the fore when Pawar with his unmatched mastery of the sugar industry is in command.
That Brazil and India will have bumper production in 2010-11 is by now common knowledge. Isma deputy director general M N Rao says that the attractive prices that farmers got for cane this season have proved to be a “very good incentive for them to shift to cane.” Not only have factories paid up to Rs 280 a quintal thereby staunching cane diversion to gur and khandsari enterprises but the sugar industry has not run up cane dues. Let the factory capacity to reward farmers handsomely be left intact so that as the prime minister desires there is stability in the Indian sugar economy.
If the monsoon behaves, the country could have sugar production of 25 million tonnes or more compared with internal requirement of 22.5 million tonnes. As we shall be opening the new season with stocks of 4.7 million tonnes, exports after a two season break remains a possibility. The Brazilian industry association Unica says with favourable weather – falling temperature and humidity – boosting cane productivity and prompting more sucrose in cane, the south American country will make a record 34.1 million tonnes of sugar and 27.4 billion litres ethanol during 2010-11.
How will prices behave in the context of oncoming bumper cane harvests in Brazil and India? In the near term, any smart gains will be capped by bountiful crop expectations in Brazil and India. After all the recent volatility, the market may be seeking an equilibrium price which could be an aggregate Brazilian production cost of around 15 cents a pound, says an economist with International Sugar Organisation.
