The Hindu Business Line : Sweet and sour

Season after season, the country’s sugar scenario continues to surprise. In the last five years, sugar fortunes have often swung between huge surplus and chronic deficit, exports and imports, and historic price highs and lows. If in 2007-08 projected output is about 260 lakh tonnes and exports 40 lakh tonnes, the next season will most likely see lower output (by 30-40 lakh tonnes, on current reckoning), tightening stocks and rising prices, with the looming prospect o f imports. For the economy, stakes in the sector in terms of employment, incomes and revenues are substantial. Yet, its growth is far from well guided.

The numerous sugar sector packages have been a drain on the exchequer, simply because little is happening on the ground to build competitiveness. For instance, no attention is being paid to consolidation of fragmented capacities, capacity expansion or modernisation to derive scale-economies. The government still exercises a vice-like grip over the sector with a web of controls and restrictions (such as the levy system and monthly free-sale quota release) that are antiquated and have outlived their utility. Sugar co-operatives, an integral part of the industry, are languishing for want of progressive leadership and time-bound strategic action to leverage their inherent strengths. Many units are gradually being leased to the private sector, raising suspicions of attempts at backdoor privatisation. While the input side is impacted by the fixing of Statutory Minimum Price (SMP) by the Centre and ‘State Advised Price’ announced regularly by some State governments (over and above SMP), the output picture is distorted by marketing restrictions. This has resulted in huge arrears of payment owed by the industry to cane growers.

Mandated use of bio-ethanol across the country can surely deliver higher prices to cane-growers, but a steady bio-fuels policy, guaranteed to remain stable for, say, at least 10 years, is not in place. Obviously, several links in the sector’s value chain are missing; and policy initiatives seem to have been designed for fire-fighting rather than strengthening the sugar economy. On decontrol, we missed the boat (rather deliberately, many suspect) as far back as in 2003. Decontrol seems to be again on the cards. But there is nothing to suggest that the government or the industry, or both, have a strategic approach to decontrol that would harmoniously reconcile the apparently conflicting interests of growers, consumers and the industry. Moreover, in the coming years, climate change and water shortage are sure to hit cane cultivation. There is, therefore, an urgent need for brainstorming among major stakeholders to come up with solutions to make the sector globally competitive under largely free-market conditions.

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