At the annual Economic Editor?s conference, Union Food and Agriculture Minister Sharad Pawar was in a tight spot owing to the looming sugar crisis in the country.
Pawar indeed has reasons to be worried, as the multi-crore sugar industry is perhaps passing through one of its most difficult times. Two successive years of low production, coupled with spiraling prices has put the entire industry into a tangle. To add to the woes, pricing of sugarcane has now turned into a war of attrition between the centre and the states.
And in spotlight is Uttar Pradesh, the country?s second largest sugar producer and more importantly home to some of the largest private millers, such as Bajaj Hindustan, Balrampur Chini Mills and Dhampur Sugar.
The genesis of the current imbroglio lies in this year?s sugarcane production. Due to the drought in the early part of the sowing season and general apathy of growers stemming from higher remunerative price from other crops, cane production shrunk by more than 1,00,000 hectares, leading to an estimated fall in cane output by around 25%. The sugar crisis has been further aggravated as carryover stocks from last year, which has slumped to just around 2.2 million tonnes (MT) as against more than 4 MT last year. This is largely due to poor sugar production in 2009-10, where output dropped to less than 15 MT, while consumption remained largely stable. In UP, sugar production this year is estimated at 8 to 10 MT, almost 2-3 MT less than last year. That?s largely because cane output is projected at around 90 MT, down from last year?s actual production of 117 MT. Because of the low sugarcane, none of the sugar mills in the state can run on 100% capacity. In Maharashtra ? which, together with UP, contributes more than 80% of total sugar in India ? the situation is only marginally different, where late rains in the month of August seem to have had a positive impact on sugar output. According to estimates, sugar production in 2009-10 is expected to be around 4.8 MT, up from an earlier estimate of 4.3 MT as rains have boosted the overall output and sucrose content of the standing sugarcane. Around 46 MT of sugarcane will be available for crushing this year, as against 40 MT last year. But, Maharashtra?s, good output, largely contributed by cooperative millers won?t be enough to wipe off the country?s deficit and overall production will still fall short of demand by 7 to 8 MT.
Fears of low output coupled with rising demand have pushed retail prices of the sweetener to an all time high. In some cities, prices rose by Rs 2 to Rs 4 per kg in just a matter of a few days. Overall, the current price of sugar in the retail markets at around Rs 33 to Rs 34 per kg is almost double of what it was during the same period last year. A nervous government swung into action. As early as 2008 itself, the government first restricted exports and later tweaked the release order mechanism. It also clamped down on mills which didn?t sell their allocated or gave adequate proof of the sales. In early 2009, when sugar prices didn?t show any perceptible signs of cooling off, the government opened up imports. It first allowed mills to import duty-free raw sugar with re-export obligation and later waived off the re-export obligation, to further make it easier for mills to import. It also imposed stock and turnover limits on traders and wholesalers, which was later extended to bulk consumers as well. As retail sugar prices kept surging, the government opened all doors for import and even allowed mills to import refined sugar, so that it could be sold directly to the consumers.
The measures had marginal impact in bringing down prices, as global prices also surged due to Indian demand. According to trade estimates, India is expected to import around 4.5-5 MT of sugar this season, making it one of the biggest buyers globally. International sugar prices which were hovering around the 16 cents per pound mark, shot up to a 28-year high of around 24 cents per pound because of India?s demand.
International sugar prices have cooled off since, but low crop output in India, the world?s second largest buyer, coupled with reports of less-than-expected production in Brazil, the largest producer has kept prices on the boil. For India, high global prices meant that local prices were also pushed up to make imports viable.
The latest controversy on sugarcane pricing could not have come at a worse time. As farmers and millers were getting ready to crush the already scarce cane in UP, the imbroglio over price at which it should be purchased by the mills between the centre and cane-growing states is threatening to delay the standing crop. While states such as UP have fixed a state advised price (SAP) of around Rs 170 per quintal, Punjab and Haryana have announced a SAP of more than Rs 180 per quintal. Which is far more than the Centre?s ?Fair and Remunerative Price? of around Rs 130 per quintal. This difference between FRP and SAP coupled with the centre?s insistence that it would discourage states to arbitrarily determine the cane price has aggravated the crisis. On Friday sugar prices in the wholesale markets in west India jumped by around 2%.
The crisis between millers and sugarcane growers may be solved soon, but endemic problems plaguing the sector will remain unless strong policy changes are adopted.