The Hindu Business Line : Bitter-sweet sugar saga

IF ANY PROOF of the fragility and shallowness of India's so-called food surpluses is required, here it is. From being a net exporter over last three years, India will soon become a net importer of sugar. Notwithstanding the overall satisfactory 2003 South-West monsoon, several sugarcane pockets had poor precipitation. The cane belt of Maharashtra, in particular, was severely hit, while growing areas in Tamil Nadu and Karnataka faced moisture-stress, with the result that the country's sugarcane output for 2003-04 is down 27 million tonnes to 255 million tonnes, as per the latest estimate of the Agriculture Ministry. Private estimates place the crop loss even higher. This is likely to cut sugar production by 2.5 million tonnes. The large opening stock notwithstanding, sugar supplies in the coming months can tighten.

Following the overall rebound in agricultural production and higher rural incomes, sugar demand is expected to expand rapidly this year resulting in further drawdown of stocks. Indeed, there are projections of sugar shortage and prices shooting up. Taking cognisance of this, the international market has already started to firm up. The market anticipates large purchases by India, the world's second largest producer. Mills are no more talking of accumulated stocks; they want to import raw sugar for processing and re-export. Imports now seem to be a certainty. The question is: How much and whether in raw form or white. Policymakers in New Delhi and in States such as Maharashtra should ensure there is no knee-jerk reaction to the emerging situation. It would be naïve to place any embargo on sugar exports. Nor should the Centre succumb to pressure said to be building on the Ministries of Food, Finance and Commerce not only to reduce Customs duty on white sugar, but also to dilute the input-output and re-export norms for raw sugar.

The new government that assumes office in June will have the unenviable task of reconciling the conflicting interests of producers and consumers. Before fashioning a response, the government must first make a clear assessment of the situation in terms of production, consumption, availability and prices, not only for the season ending September 2004 but also for the next. Mills resisted decontrol over the last three years on the ground that excessive inventory would lead to a price collapse. Sugar stocks are expected to dip to 4-5 million tonnes by the end of this season, enough to cater to three months' requirement. It would be most appropriate to announce total decontrol by withdrawing the 10 per cent levy and the monthly free-sale quota system. The case for advancing total decontrol by one year from the scheduled October 2005 has gained strength.

Importantly, for the benefit of policymakers and the industry, it must be stated that decontrol by itself is unlikely to bring lasting benefits for the sugar sector. Structural issues need to be addressed. Raising cane yields, rationalisation of cane prices, consolidation of crushing capacities, scientific pricing of joint products and investment in research and development as well as sharing the benefit thereof are issues of importance.