I was told last month that we are reforming the sugar industry, and our description of the sugar cobweb in the early 1980s in APC and BICP reports was appreciated. A rainfall failure year, however, is not quite the ideal backdrop for successful reform. Asked to write on the sugar conundrum, I am sceptical. We were doing rather badly throughout the decade with cane production below levels reached in the last decade, but 2006-07 was a bumper and so we relaxed.
In the last sugar cycle, in the early part of the decade, we had made the point to continue to protect the sugar industry at 60%, plus tariff rates?the envy of poor cotton producers who felt cheated since they were introducing the big technology breakthroughs with so-called illegal BT cotton seeds and got no protection?but government eventually allowed free import of raw sugar for mills. After all we are a globalised economy and must take the downside sportingly, so anticyclical trade would be the way out. In a trading economy, courtesy the Brazilians, Mauritians and others with plenty of land and subsidies, we would import all the sugar we want and in good years, export. Now refined sugar is imported at zero tariffs, but that is only for some parastatals and in small quantities.
Problems of course in this great country are embedded in history. I got involved in sugar after Chaudhari Charan Singhji had decontrolled sugar telling his Jat friends in the last peak to grow cane on his head. The agricultural cobweb was the first lesson in econometrics and I knew that decontrol would lead to a cycle. In an eighteen month crop in the larger producing region in UP, the farmer would go by last year?s high price, overproduce and there would be a crash. But the cycle wouldn?t work out right in our equations and APC (now CACP) charts for the future. So much for econometrics. Turns out that the farmer doesn?t make money only out of selling cane to the factory but made gur with the rest, and his return was what the mills gave him and what he made from gur. In that work on the cane cycle and later in BICP we were to argue that policy must use the market and show how the cycle could be countered. Instead of playing the market we are protecting farmers stuck to each mill and also the mill. The cost of processing would go down by 25% if crushing capacity went above 2,400 tonnes a day. We suggested giving it all up in three years.
The empire hit back, which is alright, but continues to do so. There is still a minimum support price of cane, which is Rs 81 per quintal at a basic recovery rate of 9% or Rs 92 at the average recovery rate. Raw sugar import is on OGL but it is licensed against advanced licensing. We must be the only country in the world to do open general licence import but against advanced licensing. What a web we spin. I had read that the Mahajan Committee and the Tuteja Committee had repeated what I had said first in 1982 and then somewhat loudly in 1984?get rid of the one-to-one connection between farmers, mills and pricing. But the states still declare an L factor which, if I remember right, is the realisation divided by unit cost of production for each sugar cane zone, and profit-sharing is done accordingly. The proposals for rationalisation are stuck in legal hassles because the L factor is always delayed.
Of course, the government is absolutely right in saying that state-advised prices, politically determined, are wrong and make the sector sick. But instead the policymakers want ?fair prices? and that too in a bad year. It?s like jumping from the frying pan into the fire. There is still the 1982 APC report and many others. Gur is no longer important, but byproducts are, and trade should be another cushion to take the slack. Sugar the world over is now an energy industry and is a part of agro-energy industrial complexes. Leave aside 10% ethanol; we are stuck at trying 5%. The Alagh Committee on the WTO said use tariffs. The Cabinet paid a special compliment by announcing that it had rejected it, which it hardly ever does in a PIB announcement. More importantly, the CACP and Abhijt Sen still say to work a flexible tariff and then walk away. Of course it has to be a relative tariff with other competing crops. Give powerful financial incentives to go to optimal size in factories and recycle to save costs, which will also be environmentally benign because you save energy and pollutants. Go into tissue culture. If you encourage them to compete they might start producing refined sugar rather than plantation sugar, which has little export market. Free them to trade even if they want to sell raw sugar.
Phase the reform, starting slowly for it is a bad year and don?t give the policy a bad name to kill it. Show UP how to grow horticulture crops the way the cane belt diversified in Nashik and Nagar. If they don?t know, send Nabard chief Sarangi there, for as a young Collector he did it in Nashik, implementing our agro-climatic plan. You don?t get grapes wine and onions in a water guzzling sugarcane region, for export without a vision. Incidentally you can also diversify into knowledge. My IT NGO at Rahata in the Pravara sugar factory complex got the IT HRD Maharashtra Technology Award 2009 of the Industries Department of the Government of Maharashtra on Rajiv Gandhi?s birthday. Alright, do the full reform next year, but set the date to compete with the Brazilians for cheap, plentiful sugar.
?The author is a former Union minister