Sugar, sugar

This season of surplus is a good time for full decontrol

The government’s move to allow an additional 0.5 million tonnes of sugar exports on top of one million tonnes permitted earlier is well intended. However, the total permissible exports are still not enough to adequately slash unsustainable inventories and improve the economic health of the sugar industry so that it can clear the mounting cane price dues.

Given the robust rebound in sugar production in the current season (October 2010 to September 2011) and favourable international prices, the country can comfortably export another 0.5 to one million tonnes of sugar. As the year’s sugarcane crushing season comes to an end, it is clear that the total sugar output this year would be over 24 million tonnes, up five million tonnes from last year’s 19 million tonnes and well above the anticipated consumption of 22 or 23 million tonnes. It will, therefore, be safe to export two to 2.5 million tonnes of sugar and still have a comfortable end-of-season reserve for the next sugar year. Why the government has opted for baby steps in permitting sugar exports is, therefore, not clear. The delay in allowing exports has already cost the industry dearly because international sugar prices have come down from the 30-year peak they touched in January 2011. However, they remain high, which makes exports attractive. One way in which the government can make a higher export quota more politically palatable is to give farmers a share of export earnings.

Exports would provide relief to an industry that has seen profit margins squeeze in recent months. Domestic sugar prices have declined in recent months in response to the bumper output, while production costs have soared owing to an increase in the fair and remunerative price for cane fixed by the Centre and even more generous hikes in the state advised prices. Besides, ill-conceived policies of imposing stockholding limits and stringent stock turnover norms on the sugar trade and fixing liberal monthly free sales quotas have adversely impacted the industry’s price realisation.

There are indications that the output in the next season (2011-12) will be even higher. That makes a medium-term policy for sugar and sugarcane all the more urgent. The current disconnect between the prices of sugarcane and those of sugar is not in the long-term interest of any stakeholder in this sector. This is one of the factors causing wide annual fluctuations in cane and sugar production, thus perpetuating the long-standing cycle of high and low sugar production phases. The time has perhaps come for a complete decontrol of the sugar industry, starting with sugarcane pricing to the sale of sugar. The present sugar surplus phase is an opportune time to do away with needless controls and curbs without worrying about an adverse fallout for the consumer. Inaction on this front will only exacerbate the sugar glut, pushing the industry into the kind of crises it encountered in the post-surplus production phases of 2000-01 to 2002-03 and again from 2006-07 to 2007-08.