The Hindu Business Line : The sugar policy muddle

Twists and turns largely unrelated to market fundamentals continue to mar the sugar policy, which is quite a hotch-potch with poor research and lack of commercial intelligence within the Ministry concerned. Besides not taking a holistic view of the sector, the failure to read market signals and the highly suspect demand-supply estimates are forcing periodic knee-jerk responses from Krishi Bhawan to the emerging conditions in the sector. What else explains the sudden decision to ban exports and allow imports? Early last month, State Trading Corporation was allowed to export sugar, suggesting surplus of the commodity. But within a fortnight a ban was clamped, without any solid reason. Despite claiming a sizeable increase in sugar output this year (191 lakh tonnes versus 130 l.t. in 2004-05), the Centre recently allowed free imports.

There is also a good deal of uncertainty over the export policy, especially in the matter of mills fulfilling their export obligation against past import of raw sugar. The policymakers have been vacillating over the issue, keeping the industry on tenterhooks. On paper, exports are banned till March 2007; there is nothing concrete about how mills should meet their export obligation. The latest is that the Union Minister for Food and Agriculture says sugar exports will be allowed from October as the country is poised for a large production increase. One is not sure if the Minister has merely expressed his opinion or made a policy statement. By banning exports, in effect the Government is forcing raw sugar importers to postpone fulfilment of their export obligation. But why should they be so treated just because someone in the government suddenly woke up and got unduly worried about sugar prices? Also, in their anxiety to `somehow' control open market prices, no one in the government seems bothered about pre-ban commitments. The industry and trade are made to suffer the consequences of defaulting on sugar export commitments when the policy guidelines for meeting the obligation are clear. The failure of the policymakers to meet the emergent situation is palpable. The least the Government can now do is allow pre-ban commitment. As volumes under this category are modest, domestic prices are unlikely to rise.

Meanwhile, the larger issue of total decontrol has been put on the backburner. It is high time the sugar industry was rid of restrictions. The levy system and the free-sale quota for mills must be dismantled. Admittedly, the prospects for the next season, beginning October, are good in terms of production and availability. Export opportunities are rated high because of the international market conditions. It is clearly time to decontrol. Private mills, in general, are doing well, pumping in new investments and expanding capacities. The same cannot be said of cooperatives, which continue to suffer from lack of a supportive policy environment to strengthen their competitiveness. A long-term strategy to make cooperatives truly competitive is necessary.