Mixed response to new sugar policy

By Ramnath Subbu

MUMBAI, JAN. 13. The changes announced in the sugar policy last week have been in the right direction and by and large, have been welcomed by the industry although there is a general feeling that it could have gone a couple of steps further.

The Government has announced the reduction of the levy sugar quota from 30 per cent to 15 per cent. At least, the industry feels, there is a clear intent on the part of the Government of going in for total decontrol of sugar, albeit in a phased manner. Mr. Shishir Bajaj, managing director, Bajaj Hindustan and ex- president, Indian Sugar Mills Association (ISMA), said, ``The announcement that the levy ratio has been reduced from 30 per cent to 15 per cent effective April 1, 2001 is disappointing. Sugar factories operate up to April-May and 80 per cent of the benefit would be lost if the scheme is made effective from April 1, 2001 instead of January 1, 2001.''

This would in effect have a bearing on sugar production in the following season but none whatsoever on the current situation of surplus. ``The increase in levy price of 55 paise a kg is likely to increase the issue price, that is, the retail price from Rs. 13 to Rs. 13.75 a kg in the near future. When this happens there will hardly be any difference between retail price of levy and free sugar. Once this situation emerges, there would be no justification to continue with this 15 per cent levy.'' added Mr. Bajaj.

According to Mr. Vivek Saraogi, managing director, Balrampur Chini Mills, ``We are moving in the right direction of complete deregulation of sugar. The advanced announcement of monthly releases having been increased from three months to six months is basically a pre-requisite for forward trading. This is only the first step and it will come up in the Cabinet for allowing futures trading and then a mechanism will be set in place. I think it will take about a year.'' On its part, the industry has been soft on the scrapping of the monthly release mechanism to prevent a sudden crash in sugar prices at a time of surplus. There is, according to some industry quarters, prudence in first introducing forward trading in sugar before totally removing controls.

Mr. Ram Thiagarajan, chairman and managing director, Thiru Arooran Sugars and president, Indian Sugar Mills Association (ISMA), said, ``The assurance of total decontrol of the industry soon in concomitance with the move towards futures trading is welcome. Hopefully the announcement comes at the start of the next season - October 2001 - and the sugarcane price decontrol will also follow.''

However, other problems dog the industry. With a bumper production of 18.2 million tonnes in 1999-2000 which is the highest ever, a sugar stock of 10 million tonnes as on October 1, 2000 (6 million tonnes of additional stocks - equivalent to 5 months all India consumption) and a bumper production of 18 million tonnes in 2000-01, stocks would further rise to 11 million tonnes by October 1, 2001, even assuming an export of about one million tonnes in the current year.

``Given the mounting stocks, the only recourse is to increase consumption levels to around 17 million tonnes in 2000-01.'' said Mr. Bajaj, adding, ``Today, godowns are overflowing and there are difficulties in storing sugar in rental godowns. Also, interest costs on carrying sugar stocks are rising at alarming levels. Even banks are not prepared to finance the industry where the profit indicators are not very positive.''

Exports are not yet a viable option. In the current year, India has managed to export only 2.50 lakh tonnes to date. According to Mr. Saraogi, ``The sad thing is that at the moment, exports are not taking place. The Government should realise that dumping of sugar is taking place all over the world. We need to re-introduce canalisation of exports. For example, in a country like Australia there is only a single agency and the loss on exports is shared. This was the case here also in the early Nineties. We also need a higher support level for exports.'' The ISMA too has been asking for the re-introduction of a single agency.

Mr. Thiagarajan said, `` We have to find ways to push exports and the volatility of international prices have not helped. Something extraordinary has to be done to dispose of the surplus stocks. Even with a correction of production in the current season, the carryforward of stocks to the next year could be as high as last year. One thing the policy has completely glossed over is the creation of a buffer stock which is such an important issue. We have asked for the creation of a buffer stock of two million tonnes for one year.''

Another issue which also has to be dealt with is the supply of sugar to the people below the poverty line through the Public Distribution System (PDS). The increase in monthly entitlement of those below the poverty line from 425 gm to 500 gm per individual is unlikely to have any significant impact on consumption, say industry sources. According to Mr. Bajaj, ``One needs only 1.8 million tonnes of sugar for this purpose and the Government can easily buy the same from the open market which would cost about Rs. 250 crores at current market prices. Today the Government is collecting Rs. 140 a bag by way of sugar cess whereby it is collecting about Rs. 200 crores annually. In addition, the Government has around Rs. 2,000 crores in the Sugar Development Fund. Hence it has enough resources at its command to fund the PDS supplies valued at about Rs. 250 crores annually.''

``It is time the industry is decontrolled immediately, as the biggest agro-based industry with a turnover of Rs. 20,000 crores on which 45 million canegrowers are dependent, is tending towards sickness,'' he added.

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