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North and South India are dived over the quota system again. But this time, it is over quota for sugar exports.
South Indian sugar mills want the Centre to do away with the quota system for sugar exports as, they say, it supports only trading in the licenses.
The landlocked north Indian sugar mills that cannot export sugar are demanding the continuation of the system. They can sell their quotas to exporters and make money.
Sugar mills in the South and West – with access to ports – say that the quota system adds to their cost, makes exports unviable, stock builds up in the domestic market and spoils the business for all.
The Government distributes export quotas to sugar mills on the basis of last three years' average production. For instance, last month the Government allowed exports of 10 lakh tonnes (lt). Nearly three-fourths of the licenses are with those who cannot export. At about Rs 2,500 a tonne for the license, mills can make Rs 187 crore on license alone. Last year when international prices were higher the licenses were traded for Rs 3,000-8,000 a tonne.
Sugar production hit a high of 243 lt in 2010-11. This season it is expected to be even higher with industry estimates putting it at around 260 lt against the Government estimate of 252 lt.
Prices are ruling at about Rs 26,000 a tonne and it is essential for mills to sell sugar at least at Rs 30,000 for their operations to be viable. Low prices in the domestic market mean sugar mills will not be able to pay the growers.
‘Discriminatory'
Mr M. Manikam, Vice-Chairman and Managing Director, Sakthi Sugars, said that the sugar mills in the coastal areas are unable to export because of the quota system.
If the export price is Rs 27,000 a tonne, then mills need to buy the quota for about Rs 3,000. This makes exports unviable. Stocks are building up in the domestic market.
The “quota system has not worked out well as it is discriminatory,” he said.
Sugar mills in the North can sell sugar at a higher price in the domestic market at about Rs 28,500 because of local market conditions. They are also pushing for the benefit of selling export licenses, he said.
The industry is hoping that the Government comes out with an alternative mechanism, such as a ‘first come first served' basis that would let exports happen.
According to an industry representative who did not want to be identified, the South Indian Sugar Mills Association represented its views to the Union Food Ministry last week.
In 2010-11 when sugar exports resumed after a couple of years break, domestic prices increased from about Rs 28,000 a tonne to Rs 30,000 for a couple of weeks. International prices ruled higher by about Rs 3,000-8,000. The quota system helped mills in the North that could not export directly.
With production being high for the second year in succession, the price difference between domestic and export markets is lower.
According to a press release from the Uttar Pradesh-based Dwarikesh Sugars, a delegation of North-based mills has represented to the Food Ministry to continue with the quota system to support mills that are going through a financial crisis because of high sugarcane prices.
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