are no takers.
Normally, they don't see eye to eye on any issue. But with its recent policy on decanalising sugar exports, the government unwittingly brought together the two warring factions of the sugar industry, the private mills and the cooperatives. Both sides are equally upset about the new initiative.
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In January 1997, the government decanalised sugar exports to encourage "private initiative in exports". Till then, sugar was exported by two agencies, the Indian Sugar and General Industries Export Import Corporation Ltd (ISGIEIC) and the State Trading Corporation (STC), under the Sugar Export Promotion Act, 1958. But the government felt that decanalisation would induce factories to improve their quality and fetch higher prices in the international market.
Yet, the industry itself is completely bewildered by the urgency with which the government has acted on the issue. "This was the least important issue for the industry," says Dhruv Sawhney, CMD of the Rs 250 crore Triveni Engineering.
In fact, given the powerful sugar lobby, both the Congress and Bharatiya Janata Party members stalled the Sugar Export Promotion (Repeal) Bill in the Rajya Sabha. Says S L Jain, director-general, Indian Sugar Mills Association "Every step the government took boomeranged. Unable to get the bill passed, it issued an ordinance on January 15 .
Following the ordinance, the government sanctioned 2.5 lakh tonnes for exports by April. This was to be routed via the Agricultural and Processed Food Products Exports Development Authority (APEDA). Earlier, ISGIEC had handled all preferential quotas to the European Economic Commission and USA while STC handled exports to Nepal. They shared all other commercial exports. Also, under the earlier Act, profits and losses from exports were shared equally by the factories on a pro-rata basis linked to their production.
According to the National Federation of Cooperative Sugar Factories, between April 1991 and March 1995, nearly 11 lakh tonnes valued at Rs 925 crore was exported at a loss of Rs 50 crore. During 1995-96 alone, the industry exported 10 lakh tonnes worth Rs 1,330 crore. The losses incurred were Rs 23 crore. Exports in the 1995-96 sugar season (October to September) were 8.87 lakh tonnes. And upto December 31, 1996, ISGIEC had shipped 10,70,340.87 tonnes of sugar while STC had contracted 0.30 lakh tonnes.
According to M S Marathe, managing director of the National Federation, since January 15, very little sugar has been exported. "Export decanalisation is aimed at promoting 'individual initiative' but the result so far is a big zero. Unless you decontrol and delicense the industry, mere decanalisation will not be of any use," adds Jain.
Exports have also been negligible as international prices are lower than domestic ones. World sugar prices are around $320, equivalent to the domestic levy price, which is lower than the production cost. Besides, with the provision to cover losses abolished, Marathe feels no factory will export at a loss.
Exports are also hampered by the release mechanism. Shankarrao Kolhe, founding chairman, Sanjivani SSK Ltd in Maharashtra, points out that sugar is not a retail product. "It is exported by the shipload ranging from 12,500 to 50,000 tonnes. Given our monthly releases, a single factory cant fill up a shipload," he says.
Also, exports by a factory are adjusted against its monthly free sale quota. "Decanalisation can only work if the government gives an additional quota for exports," says Jayant Patil, managing director, Rajarambapu Patil SSK Ltd in Maharashtra.
Yet, in times of excess production like the last two years, exports, even at a loss, improve financial liquidity, earn foreign exchange and release storage space for the factories.
In fact, India is the largest producer of sugar in the world. But it has failed to emerge as a significant exporter. In 1995-96, India produced 179.35 lakh metric tonnes of raw value sugar, Brazil produced 135.94 lakh tonnes and Australia 51.33 lakh tonnes. But India exported less than one per cent of its total production. In contrast, Australia and Mauritius export nearly 90 per cent of their produce while Brazil and Thailand export 60 to 70 per cent.
The main markets for Indian sugar are Pakistan, Sri Lanka, Bangladesh, Burma, Indonesia, the Middle East and some African countries. "It is in our interest to have a presence in these markets. Instead, we are likely to lose out to other exporters like Thailand. Also, we may end up with a reputation of being unreliable suppliers," says Marathe.
A huge domestic market and systemic inefficiencies are responsible for the poor performance. Take the recent case of exports to Pakistan. STC was contracted to deliver 50,000 tonnes at $360 per tonne by end-1996. But it failed to deliver on time even though it had won the order amid stiff competition from players like Top Glory of China and the Dubai-based Saleh Corporation. Finally, since STC couldn't deliver on time and since it faced a shortage, Pakistan approached private players here to make the deliveries at the same price.
Infrastructure is another bottleneck. In the case of exports to Pakistan again, sugar is delivered either at Karachi port or at the Wagah border. Because of a shortage of rakes, big consignments cant go from Wagah. And the ports have poor berthing facilities. For instance, India loads sugar at the rate of 800 tonnes a day while Australia loads it at 1600 tonnes per hour.
Besides, Indian sugar is not qualitatively competitive either, points out Patil. An icumsa value is used to indicate the colour of sugar. While internationally, sugar has an icumsa value between 40 and 80, the icumsa value of Indian sugar ranges between 80 and 120. And as it is stored, it goes up to 120 to 150. "It's easy to order factories to export. But you must have a quality product. Also the high production cost means it is not competitively priced, says Patil.
What worries the industry is that under the new system, Indian players will compete with each other. This will result in severe undercutting while bidding for international contracts. Yet, it could be an opportunity for efficient units or for mills located near ports.
But apart from commodity sugar, another area of export potential exists. The industry has expertise in setting up sugar mills on a turnkey basis. It could export this expertise, as some players are doing. ISGEC Exports Ltd is executing two projects worth Rs 40 crore in Vietnam. Part of the Rs 350 crore Saraswati Industrial Syndicate, ISGEC deals in sugar and other engineering products. It is installing a 1,250 tonnes crushed per day (tcd) capacity sugar mill in Can Tho province. And it will supply and commission two boilers for an upcoming factory near Hanoi. It is also training 20 sugar technologists. With more projects in the pipeline, ISGEC hopes to enlarge its presence in the Vietnamese sugar industry.
Other Indian sugar companies are also looking for a toehold abroad. For instance, the Nagarjuna group has set up a $230 million, 3,500 tcd sugar plant in Vietnam. It has a 40 per cent stake in the joint venture mill, while the rest is held by investors from Singapore.
As for commodity exports, Marathe believes that if the fluctuating sugar production can be stabilised, India can emerge as a big exporter. It could export 1.5 to 2 million tonnes per annum.
But this doesnt require decanalisation, says the industry. As one source points out, exports are canalised in countries like Cuba and Australia. "Sugar exports in Australia are canalised through the Queensland Sugar Corporation. In India, the internal competition will reduce the benefits to the country," he says.
By decanalising, the government may have set free a caged bird but it seems unable to fly at the moment. And it may be a while before it can confidently spread its wings.