Political opportunism remains bane of sugar sector

UNICA, the Brazilian sugar-cane sector association, has come down hard on India for extending support to our producers to export four million tonnes (mt) of sugar through the next two years. Considering the distressing state of the world sugar market, which has seen a sharp fall in prices of late, and the Brazilian sector's paramount dependence on exports, the fact the UNICA has decried the export push is understandable.

Brazil, the world's largest producer and exporter, accounts for half the global trade. Whatever UNICA may have against India exporting to the world market, deluged by supplies from other sources, it is only after considerable deliberation that New Delhi has decided to extend a subsidy of Rs 3,500 a tonne for raw sugar exports. This is despite our mills geared to make white sugar. The primary concern of all three senior ministers was to ensure the subsidy was in line with the World Trade Organization norms. To be able to participate in exports, our shore-based factories will have to make suitable changes in the manufacturing system for the raw commodity. The subsidy of Rs 1,400 crore will be borne by the Sugar Development Fund and the exchequer. Agriculture Minister Sharad Pawar reckons the subsidy will not fully cover the premium the Indian material enjoys here over world prices.

Officials from the sector said what UNICA hadn't conveniently taken into account was the damage inflicted on our sugar economy by imports of 3.1 mt, raw and white combined, during the season ended September. Imports were mostly from Brazil. Such large imports come at a time when India has had four consecutive bumper production years, including the current season. No one will contest the compulsion of our port-based refineries to import raws for processing and then export as white. The problem arises because the much-proven grain-to-grain import-export practice has ceased to be in vogue. More, exports of foreign-origin raws processed into white should happen much ahead of the now-allowed 18-month period. When factories have to contend with overflowing stocks, circulation of any amount of foreign sugar could further damage the weak market sentiment.

"Export subsidy should be read as government acknowledgement of the deluge of stocks and the consequent low prices have led to the sector having its back to the wall. As exports of four mt of raws will aid the sector in a major way, imports need to be discouraged by raising duty from 15 per cent to at least 40 per cent. Is there any rationale of supporting growers in other countries when cane bill payment dues of factories here have crossed Rs 10,000 crore, including dues from the last season?" asks Om Prakash Dhanuka, former president of the Indian Sugar Mills Association (Isma).

To enable factories to clear cane bills, in December, the government asked banks to extend interest-free loans of Rs 6,600 crore. But as a whole, the sector has become so financially weak that most of its constituents do not stand a chance to get loans under the mandated conditions. The package will remain a non-starter unless conditions are relaxed. Hopefully, the urgency to settle bills will lead the government to consider Isma suggestions on the modification of terms. Director-General Abinash Verma says in case the new line of credit remains in limbo, factories could run up bills of up to Rs 18,000 crore by March-end. Earlier, M Srinivasan, ex-president, said if sugar prices didn't improve, dues would be Rs 20,000 crore by April-end. This is a recipe for an outburst in the growing regions. The unrest is building when the country is getting ready for elections. About 50 million grow cane.

Why has the non-payment of bills become a regular feature with our sector, unlike in Brazil, Thailand and Australia? According to Srinivasan, all these are spared the pains felt by India because they opted for a linkage between cane and sugar prices. Not only has the formula benefited growers and factories in equal measure, it is also the reason for varietal improvement in cane through tissue culture and a rise in sugar recovery from cane.

Here, in spite of the Rangarajan committee saying value-sharing of sugar and by-products such as bagasse and press mud in 75:25 between farmers and factories will usher "stability in the payment of dues", New Delhi is yet to implement it.

The Centre has taken the stand linkage formula introduction will have to await a consensus among growing states. Unfortunately, Uttar Pradesh and Punjab, which have made it a habit to load big premia on centrally-decided 'fair and remunerative' prices to please farmers, are wary on value-sharing. But as mounting bills will show, farmers are paying a heavy price for the injudiciousness of states.
FAR FROM SWEET

• Officials say Brazil sugar-cane body UNICA hasn't considered the damage on our sugar economy by imports of 3.1 mt, raw and white combined
• To enable factories to clear cane bills, in December, the government had asked banks to extend interest-free loans of Rs 6,600 crore
• Imports need to be discouraged by raising duty from 15% to at least 40%
• In case the new line of credit remains in limbo, factories could run up bills of up to Rs 18,000 crore by March-end
• India hasn't implemented the suggestion of value-sharing sugar and by-products 75:25 between farmers and factories