Redundant controls

It's time the govt removed curbs on the sugar industry

The country is headed for another spell of sugar glut unless the government lifts all curbs on sugar exports. With the sugar output in 2011-12 expected to exceed the projected demand by three to four million tonnes, it will be the second consecutive year when the market will have to contend with a surplus. Between 2000 and 2003 and again between 2006 and 2008, a similar surplus situation had hit both the sugar industry and sugarcane farmers. While the industry suffered heavy losses owing to a price slump, the cane growers were distressed because of non-payment of their cane price dues by the liquidity-starved mills.

What followed, predictably, was a diversion of acreage away from sugarcane and a fall in sugar output, perpetuating the cyclic oscillations in sugar production and prices. It would be unfortunate if such an adversity is allowed to hit the industry again, though neither the sugar industry nor sugarcane farmers see an escape.

The government’s policy of allowing sugar exports in installments has not helped in adequately trimming the sugar inventories before the new cane crushing season begins. Domestic sugar prices have remained more or less static for months. The chances of a surge in prices in the near future, too, are slim since the main festival season is over, the free-sale quota for November has been pitched fairly high and fresh production has begun. On the other hand, the cost of sugar production is bound to rise, thanks to an increase in the fair and remunerative price by the Centre and a relatively more liberal increase in the state advised prices. The government of Uttar Pradesh, the second largest sugar-producing state, has jacked up the state advised price by a substantial Rs 40 a quintal with an eye on the Assembly elections due in a few months. Such policies, coupled with retrograde measures like continuing sugar levy (which tantamounts to the industry subsidising sugar for the public distribution system) and a cap on monthly sugar sale by mills, stockholdings and turnover, are making matters worse for the sugar industry.

In their overzealous drive to protect cane growers, ruling party politicians often overlook the fact that the fate of farmers and the sugar industry is interlinked since neither can survive without the other. Nothing is more far-fetched than the premise that, given the freedom, the industry would exploit cane growers. On the contrary, the sugar mills would do everything to keep cane growers in good humour by paying them remunerative prices so that they continue to grow enough cane to feed their plants. The time, therefore, is ripe for the government to totally wash its hands of this sector, giving the industry full freedom to procure cane and produce, sell and export sugar the way it wants. The sugar industry, on the other hand, will be well-advised to evolve a mechanism of paying a benchmark price at the time of cane delivery and determine the final price after taking into account the realisation from sugar as well as its byproducts, including bagasse, molasses, press mud, alcohol and power, in a transparent manner to the satisfaction of the farmers. It will be a win-win situation for all players in this sector.