Lift the ban

The government's approach to the issue of sugar exports passes understanding. A ban on exports has been put in place till April 2007 and, despite calls for a review, none has been forthcoming. Meanwhile, India heads into a year of large sugar surpluses, with the expectation of record production in the new sugar year, even as international sugar prices fall. Countries like Brazil and Thailand are taking advantage of the space in the international market being vacated by the European Union, while Indian sugar stocks wait in godowns. The ban on exports should be reviewed, and removed without further delay.

The sugar forecast for 2006-07 (October to September) is that India's sugar output will rise to 23 million tonnes; with opening stocks of more than 4 million tonnes, the total availability will be over 27 million tonnes. Against this, consumption is expected to be about 19.5 million tonnes, and sugar re-export commitments add up to 2 million tonnes. That will leave closing stocks of about 5.5 million tonnes at the end of the sugar year. There is plenty of room here to allow the export of 2 million tonnes of sugar, especially at a time when the big sugar companies are expanding production capacities.

The traditional volatility in the sugar cycle needs to be kept in mind. Cane prices have been raised in most states, and the mills also have to share a part of their profits with farmers. If the mills do not do well this year because they have to carry more stocks, cane payment problems (which have disappeared over the last couple of years) could re-appear, and this will affect cane acreage for the 2007-08 season""just when the mills have put in new production capacity. If cane abundance is to be assured, so that the new crushing capacity can be used fully (thus creating even more export surpluses), then the price cycle has to be smoothened out and this can be achieved only by lifting the ban on exports. It is also important to bear in mind that the world sugar market is changing as the EU reduces its dumping of subsidised sugar in international markets. India is a significant sugar producer and the world's largest sugar consumer, but its share of the world trade in sugar is small. There is an opportunity here for growth in an agri-industry that should not be missed.

The new element in the equation this year is ethanol. Petrol is to be doped with ethanol to the extent of 5 per cent, starting this month, and this will create an alternative product market for the mills. However, 5 per cent doping is unlikely to be a significant factor in the sugar calculus, especially when there have been pricing uncertainties. The government has talked of raising this to 10 per cent, but it remains to be seen if and when this will materialise. Brazil has used ethanol as a useful tool for balancing production by its mills and for sugar supply management (it allows a 20 per cent petrol-ethanol mix), and India could do the same so long as oil prices remain at their present levels and make such doping an attractive option.