Sugars bitter truths

Written by Abinash Verma | Updated: Mar 19 2014, 08:47am hrs
It is necessary to correct some inaccurate information and conclusions given by the author of the recent article Sugar-coating subsidies (FE, March 15, http://goo.gl/rea6ZJ). Let us understand that the Indian sugar industry basically produces white sugar, which gets consumed domestically. Any surplus, which comes up once in a while, is exported. That situation has changed in the last few years. With sugar refineries mushrooming globally, including in countries where India exports white sugar, the import demand now is more for raw sugar. Additionally, the standalone refineries in Indiaat Kandla, Haldia and Kakinadawould henceforth require 1.5 million tonnes of raw sugar. Adequate production of raw sugar could give India access to the Indonesian market, which imports over 3 million tonnes of raw sugar annually.

Considering that we have produced surplus sugar continuously during the past four years, it has become necessary for Indian mills to produce raw sugar. Thus, the governments decision to incentivise raw sugar comes at the right time to ensure that the Indian sugar industry has a diversified product mix.

Now to rectify the wrong information in the above-mentioned article:

The gazette notification of February 28, 2014, clearly states that the amended SDF rule shall come into force on the date of their publication in the Official Gazette. There is no retrospective application from February 1, 2014, as claimed by the author.

Para 3 of the notified rule covers refined sugar exports, provided that domestic raw sugar supplies are used for the same. The incentive is not an export subsidy but an incentive to millers to embark on production of raw sugar. It says that to be eligible for this scheme, licence holders should get their imports invalidated, thereby encouraging raw sugar import substitution. Again, brilliantly thought out by policymakers.

The article calls the policy discriminatory in favour of few holding the licence. Paras 7 and 8 of the rule provide for prior registration with DGFT, without any prohibitions, giving equal opportunity to all. All refiners can obtain licences, provided domestic raw sugar supplies are refined by them.

The Sugar Cess Act, 1982, provides for a cess on the sugar produced by mills and the SDF Act, 1982, clearly states that the funds thereof are to be utilised for the development of sugar industry and for matters connected therewith or incidental thereto. Yet the article suggests that SDF is funded by the Indian consumer and is meant for the benefit of the consumer. Mills are selling sugar below their costs of production forcing them to absorb the cess themselves. There are other funds/schemes for the consumers, but not SDF.

While talking of inflation, it should be noted that the sugar prices have fallen by around R6,000 per tonne since August-September 2012. These prices are significantly below the cost of producing sugar. In fact, inflation on sugar has been negative over last year. Sugar prices were so low that sugarcane alone took away over 90-95% of the revenue realised from sugar, making mills defaulters of banks and farmers. Sugar prices are recovering now, but still not enough to cover the costs and are still below the prices that prevailed 14-15 months ago. How can one talk of inflation under these circumstances

Of the total exports of 1.2 million tonnes up to February-end, 2014, raw sugar exports account for 0.5 million tonnes, and not 1.3 million tonnes as claimed in the article.

FCI is fully subsidised by the government and run by government officials, unlike sugar companies which are mostly in private hands or run by farmers as their cooperatives. Where is the need to give separate/additional incentives to FCI

The authors suggestion that the policy could be reviewed by the Election Commission is nothing but preposterous. One hopes that the author does not wish to suggest that domestic sugar producers should continue to lose and eventually close down. That will only force India to import sugar, exposing consumers to high global prices. This happened just five years ago.

Farmers should get cane payments to keep them interested in sugarcane production. Cane price arrears could cross R15,000 crore if corrective steps are not taken. The author has failed to highlight that the incentive can be used to pay cane price of farmers only. Also that the government will review the incentive before the start of the next sugar season. Governments cannot be expected to keep reviewing incentives too frequently. The industry/exporters would want a stable and transparent policy to ensure long-term contracts.

The author is director general of the Indian Sugar Mills Association