Opinion - Editorials

Bitter sweet

THE CURRENT PROBLEMS of the sugar industry manifest themselves in several ways. There have been big question marks over the inherent viability of the industry as a whole in its present state. A glut of the finished product produced at uneconomic rates is affecting the industry's fortunes at a time when the policy environment is in a state of flux. Across the country, the woes of cane growers who have not been paid by the sugar mills are being highlighted by political parties. No early solution is in sight. Over the medium term, the interests of the sugar industry and its stake-holders — apart from the sugar mills and the cane growers, the consumers too naturally matter — can be protected only by grasping the opportunities and downplaying the threats that are emerging.

Like many traditional industries in the liberalisation era, the sugar industry is in the throes of a major transformation. The passage to a freer policy environment has not been smooth. Apart from having to cope with a policy relaxation that moves in fits and starts, the sugar mills have to confront a few problems of their own making. To begin with, there is no homogeneity among the 493 sugar mills operating in India with an aggregate installed capacity of 162 lakh tonnes. There are significant variations in their working, in the efficiency parameters leading to distortions in the cost of production. Moreover, there is a kind of a geographical divide with sugar mills in the North having a different set of problems compared to those in the South. A significant number of sugar mills are in the cooperative sector while some others are listed on the stock exchanges. Apart from the general turbulence all of them are facing, each segment has its own special issues. Since the industry has often been unable to speak in one voice, it has been extremely difficult to adjust the policy framework to suit the industry in its entirety.

Nevertheless, at the transition stage, the sugar mills need to find solutions to some common problems even to stay afloat. The Indian sugar industry has been tightly controlled in all its facets over almost fifty years. Apart from licensing requirements (to regulate installed capacities), there have been controls and stipulations such as a minimum support price for sugarcane, reservation of cane areas, control over the price of sugar and restriction on the sale and movement of sugar and even the most important byproduct of the industry, molasses. The Government has been following a dual pricing policy for sugar: a fixed percentage of production has to be sold to the Government or its nominees as "levy sugar" for distribution to consumers through the public distribution system and a free market price, which is also subject to a Government-imposed release mechanism.

In the liberalisation phase many of the controls and restrictions have been lifted. The industry has been delicensed. Sugar has been decanalised. While the mills can export sugar on their own, imports have been brought under the OGL. The levy obligation on the producers has been brought down from a high of 65 per cent in the early 1980s to just 10 per cent effective March this year. Controls over the fuller utilisation of molasses have been lifted. While full decontrol of the industry might take place by March 2003, it is obvious that it is not going to be smooth sailing. Compounding the most pressing problem of a huge stock of sugar is the fact that domestic prices are at six-year lows and international prices are unremunerative as well. Solutions will have to be found for the inflexible cane support prices. A few progressive mills plan to move up the value chain and produce superior qualities of sugar for the export market. The biggest opportunity for the industry might well be in the planned introduction of the ethanol-blended gasoline as an automotive fuel very soon in nine States and four Union Territories. Many mills had lobbied for this but, as their past experience with co-generation shows, it might be equally difficult to be a multi-product producer as it is to remain just a sugar producer.

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