The recent controversy within the sugar industry itself over the proposed policy to eliminate export quotas to individual mills speaks loudly of self-contradiction.
The industry has been clamouring for liberalisation and freedom from Government control over procurement of cane and production/distribution/exports of sugar. Surprisingly, when a small step to liberalise export in the interest of domestic price support is thought of by policymakers, the split and rift within the industry becomes a subject of media attention.
The socialist policy of export quotas of sugar that was prevalent till OGL 5 (for two million tonnes) has failed to give a significant push to export, or support domestic prices to a remunerative level. It perpetuated quota premiums to non-exporters and interrupted smooth flow of export due to procedural hassles in obtaining Release Orders from the Government. Thirty per cent of tonnage authorised so far has been shipped till March 2012. The niche window of reasonable export prices is available and profits needs to be pocketed now without any delay.
UNJUSTIFIED FEARS
The fear of the industry in the interior regions of India — that it will not be able to effect exports due to internal freight cost and therefore will be deprived of “export profit” — is misplaced. When the exports take place from the mills near the ports at a rapid pace, domestic prices will rise to a level wherein the entire industry will benefit.
Better domestic realisation will lessen the load for disbursement of cane arrears. Any steep hike in domestic values will automatically curb exports or can invite official intervention. The new proposal rightly negates the principle of “trading quotas” and emphasises the cardinal concept of “sugar exports”.
So long as a pre-determined limit of export of three or four million tonnes is applicable on an all-India basis to the mills and the merchant exporters — as in the past — on a first-come, first-served basis (to be determined on the basis of shipping bills endorsed by the customs at the port), it will be a progressive policy.
The overall quantity can be regulated by the electronic data interchange platform as in the case of rice and wheat on a non-discriminatory basis. All parties, including buyers abroad, shall be aware of total tonnage shipped at any point of time. And that is the litmus test of transparency.
The Government may restrict/ban the export when the supply-demand equilibrium is disturbed in the local market. The name of the mills who exported/supplied the sugar can be reflected in the shipping bill for adjustment in levy quota. This essentiality can be notified for compliance.
CONTRACT OBLIGATIONS
However the policy will be deemed deficient if it is limited to obtaining Release Orders on first-come-first-served basis from the Sugar Directorate on the basis of the contracts, that may be signed/ generated for cornering the quantities. The Government should not burden itself with the obligation to authenticate commercial contracts, and it does not have the capacity to do that.
Neither can bank guarantees be sought to ensure performance as the Government is not in the business of encashing such guarantees or fighting litigation that may arise as a result of enforcing such guarantees.
There could be a concern that the buyers may abandon old contracts due to lower prices under the new dispensation.
Under such circumstances, the contractual provisions need to be imposed rather than to attribute defaults to the policy environment. Any respectable buyer will not breach a contract, as price volatility is an accepted feature of commercial transactions.
Since international prices of sugar appear to be bullish in view of weather constraints in Brazilian cane production, sugar trade should capture and exploit this opportunity without creating internal controversies between themselves and the policymakers.
(The author is a grain trade analyst.)