Last week, the Food Minister said that India has adequate sugar surplus for exports in 2012-13. Simultaneously, there are also reports of a line-up of vessels for approximately 400,000 tonnes at Brazilian ports for loading raw sugar, perhaps headed for India.

Imports of raw sugar at around $500 c&f India, after 10 per cent duty imposed in July 2012, will not be viable to dampen the recent 20 per cent price spike in refined sugar (from $535/t or Rs 32/kg to $650-680/t or Rs 38/kg) in local market. Their production cost after refining may be closer to $700/t.

Higher local prices may have facilitated clearance of cane arrears in Uttar Pradesh or elsewhere, but also added to general inflation. Existing exports have been stalled because of cheaper availability abroad.

The buoyancy of sugar values from July 12 onwards could partly be attributed to “exuberance of speculation” on lower cane output due to shortfall in rain in Maharashtra and Karnataka.

DUTY DISTORTIONS

Indian supplies can be augmented, if duty is dispensed with. However, Indian port-based refineries may “import-process-re-export” sugar under “grain to grain” policy that does not attract any duty, thereby not affecting domestic availability. Port refineries may also “import-process-sell” sugar in the local market with export obligation, to be complied within next three years. No duty implications are applicable for this route as well.

However, most sugar mills in the interior areas cannot circumvent this duty, if at any stage they feel imports are viable. This is discriminatory.

The total world surplus of sugar may be seven to eight million tonnes, against global production of 180 million tonnes. Prices can be very volatile even with marginal variations in output vis-a-vis consumption anywhere in the world.

This tariff regime needs to be abolished for ensuring equity, fair play and transparency. Free export/import policies are self-balancing, and need no policy intervention if the data/estimates are realistically presented and updated. The supply/demand matrix shows India’s excess availability at around 5 million tonnes, but this surplus alone will not translate into overseas business. For exports to take place

Indian quotes should be lower than international prices, for which arbitrariness in SAP, or State-advised price, has no place;

export norms should be simpler and adaptable for international transactions (wrinkle out kinks in DGFT procedure)

export/import should be isolated from threats of duty/ban, with a facility to undertake merchant trading from third countries.

Will Maharashtra and Karnataka show steep a decline in cane production and refined sugar?

At an all-India level, sugarcane production estimates for 2012-13 are pegged higher thanks to the substantial rise in the acreage compared to 2011-12. Since these are “estimates”, there is, however, an element of uncertainty.

DGFT’s Policy

The Government and sugar industry need to recall what happened in 2009-10, when sugar supply was suddenly raised from 15 to 19 million tonnes, due to superior sucrose recovery from better genes of sugarcane in Maharashtra. All imports in 2009-10, though undertaken free of duty, and then had to be abandoned, cancelled or re-exported.

The Prime Minister, on May 2, 2012, eliminated allocation of tradable export quotas. Such allocations were traded at a premium of Rs 2000-8000 per tonne in the domestic market, inflating the f.o.b value. India missed export opportunities in 2011-12 due to burden of “quota premiums”.

Thereafter, the Food Ministry denotified quotas on May 11, 2012, through a Gazette notification.

Shockingly, the Directorate General of Foreign Trade on May 14, 2012 announced another regressive regime of procedures, making an export registration certificate mandatory for all shipments.

The DGFT’s condition was that unless 50 per cent of the authorised shipment under one registration certificate (RC) was completed, the second registration certificate would not be issued. It meant that after signing one export contract, a trader could not enter into another export transaction for the next 45-60 days, by which time the global prices might not be favourable — a situation that prevails now.

It also encouraged registration of subsequent contracts through an associate company or a subsidiary firm.

The DGFT also imposed a penalty of five times the contract value if a trader failed to export the sugar. For example, if the default is for Rs 10 crore, DGFT can impose a penalty for Rs 50 crore. Such a move does not have the backing of the Food Ministry or the Sugar Directorate.

The DGFT does not have any mechanism/bank guarantee to recover penalty amounts from exporters. Sugar exporters will be fighting arbitration proceedings in the international market with their buyers on contractual terms, while the DGFT will be initiating parallel administrative penalties against these parties.

OGL in letter and spirit implies Open General Licence, but DGFT generally takes it to mean “open but generally licensed”. If the intention of DGFT was to monitor the quantity, then the simplified procedure of port-based EDI system, as notified for other commodities, could have been specified.

India has to be a creditable international player for all commodities, including sugar. Policies of adhocism need to be shunned and inter-ministerial coordination must be ensured.

(This article was published in the Business Line print edition dated September 20, 2012)
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