The Hindu Business Line : Shades of opinion on import of sugar, its timing

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Shades of opinion on import of sugar, its timing

It may be premature and risky for the Government to intervene in the market in a manner (tonne-to-tonne import right away), the impact of which may be felt for many seasons into the future, says SISMA (TN).

G. Chandrashekhar

Mumbai, Jan. 1 Should India import sugar? If yes, raw or white? When should import begin? Now or after 2-3 months? Should import be under open general licence or against an export obligation? If latter, what is the timeframe for meeting the export obligation? These are some of the questions the domestic industry is currently debating; and there are shades of opinion – on timing, on import policy and on export obligation.

Lobbies are working overtime to present their case. The Government on its part is buffeted and perhaps does not quite know what to do. The interesting part, however, is that there are no two opinions within the industry about the desirability of import.

The entire industry as also the policy makers are convinced that cane output this season (2008-09) is lower by over 15 per cent and consequently sugar production would decline from the record level of 26 million tonnes of 2007-08.The changed demand supply fundamentals are a ready pointer to the potentially explosive price situation that is developing.

Indeed, the market has already taken cognisance of sharply reduced sugar production (approximately 5-6 million tonnes) and prices have steadily moved up by over 15 per cent in last 2-3 months.

What’s capping the upside currently is the ongoing crushing season. Peak season for sugar production lasts 3-4 months maximum. December, January and February usually are months of high output.

Tonne-to-Tonne policy

There is, of course, no problem in allowing raw sugar import anytime on grain-to-grain basis, which means import now, process it and export. Such sugar will not be available for the domestic market.

One section of the industry wants raw sugar import to be allowed with an export obligation on a tonne-to-tonne basis (which means import raw sugar now, but meet the export obligation out of domestic sugar one or two seasons later). This is where the rub is.

According to the South India Sugar Mills Association (SISMA-Tamil Nadu), timing of import is critical. SISMA is convinced it is not desirable to permit raw sugar import at this point of time when crushing is still going on. There is apprehension that the sugar market especially in deficit areas of eastern and north-eastern India will collapse and quickly snowball into a pan-national drop in sugar prices. This may have serious adverse consequences for payment of cane dues to growers and on planting of cane for the next season, it is feared.

Mr N. Ramanathan, Vice-President of SISMA (TN) and Managing Director of Ponni Sugars, told Business Line: “Tonne-to-tonne policy is sure to lead to problems in cane payments and thus non-planting of cane for the next season.”

Apprehending an acceleration of decline in sugar production with little hope for reversing the trend, the industry representative asserted that tonne-to-tonne import before the end of the current crushing season will kill any incentive the growers may have and lead to larger imports in future years to come at higher international prices.

Multi-step approach

The association, which believes that it is most inopportune to press the panic button now, has listed a multi-step approach for the policymakers.

The first step is to continue using existing stocks to place a lid on sugar prices through release of larger quantities. The next step is to defer existing obligations of export under Advance Licensing Scheme introduced in 2004-05, which will make available about 8 lakh tonnes this season. Incidentally, this is the quantity of raw sugar that is likely to be imported on tonne-to-tonne basis, if allowed.

If domestic prices continue to harden, as the third step, the Government must publicly announce its intention to reduce Customs duty (currently 60 per cent ad valorem) on imported sugar (white or raw) to keep open market rates below Rs 20-22 a kg. The fourth step proposed by SISMA is that raw sugar should be allowed for import on grain-to-grain basis and kept as contingency stocks in warehouses after processing into white sugar. This may be quickly released into the market, if needed.

Lastly, tonne-to-tonne raw sugar imports may be allowed if the current year sugar production turns out to be lower than the latest estimates and if cane planting continues to be inadequate to meet domestic needs next year.

According to Mr Ramanathan, given the current scenario, it may be premature and risky for the Government to intervene in the market in a manner (tonne-to-tonne import right away), the impact of which may be felt for many seasons into the future. “Instead of benefiting our cane growers, a faulty import policy that is sought to be lobbied for will benefit cane growers in the countries of foreign suppliers,” he argued.

SISMA (TN) believes the impact of lower sugar production and its effect on market prices can be moderated considerably by following a step-by-step policy over the next 2-3 months without rushing to make untimely policy interventions.

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