The Hindu Business Line : Sugar import likely as domestic output dips

sugarTHE financial and other problems arising out of excessive stocks carried by the domestic sugar industry may soon come to an end if production and consumption trends this season are any indication. But concerns over the emergence of another set of problems are growing — this time arising out of imports that are increasingly seen becoming inevitable.

After reaching the peak of 300 million tonnes (mt) in 2001-02, sugarcane output declined to 281.6 mt in 2002-03. Despite excellent monsoon overall, the output precipitously dropped to a low of 255.4 mt in 2003-04 as per second advance estimate of the Ministry of Agriculture released last month. This is the lowest level of cane production since 1994-95.

A sharp decline in cane output usually results in large diversion of cane for gur and khandsari production. A 26-mt lower cane crop is expected to push sugar production down during the current season to around 17 mt (20.1 mt last year). A section of the industry and trade believes actual output could be even lower at about 15.5-16 mt.

Maharashtra, the country's largest producer of sugar, has suffered a setback in output this season because of severe moisture-stress faced by the cane-growing region.

Apprehensions of a shortage and price rise are looming. But given that the season began with a sizeable carry-in of more than 10 mt, there is nothing to suggest a real shortage even if the season's production were to be lower by 20 per cent.

However, mills are likely to suffer from limited availability of cane, which would affect capacity utilisation. The period of crushing would be limited this season. No wonder, mills and trading houses have already started to scout for imported raw sugar.

Import of sugar is allowed freely subject to a 65 per cent customs duty plus countervailing duty equivalent to excise duty. However, raw sugar can be imported duty-free for domestic processing and re-export. There is now a scramble for sourcing raw sugar for arrival during the off-season beginning April/May.

The Government must utilise this opportunity to help mills liquidate stocks.

Higher release of free-sale quota would help contain prices in the open market and dampen the enthusiasm to resort to imports. With rural incomes going up this year, the growth in sugar consumption is bound to be robust.

It is estimated that sugar consumption could rise to 18.0-18.5 mt this year given the income elasticity of demand.

Once inventory is brought down to manageable levels (say five mt to cover three months' consumption), it may be time to seriously look at complete decontrol of the sugar industry.

An opportunity is perhaps presenting itself for advancing the total decontrol by one year to October 2004. The new government that assumes office at the Centre 10 weeks from now should look at the present developments in a positive light, take steps to disentangle this industry from the web of restrictions and set it free once for all so that it becomes competitive.

There, of course, are structural deficiencies that the industry leaders need to look at and address to be able to become globally competitive.

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