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Venkatraman from Rabo India scans the Indian sugar industry and says
that the government should encourage the effective utilisation of
sugar by-products such as bagasse and ethanol
The
Indian sugar industry is worth Rs 25,000 crore and vies only with
Brazil for the position of the world’s leading sugar producer. Currently,
about 4 million hectares of land in India is under sugarcane cultivation
with an average yield of 70 tonnes per hectare. The cumulative production
during October 2002-May 2003 stood at 19.65 million tonnes – 8.6 per
cent higher than the output during the corresponding period of the
previous year. According to industry sources, sugar production is
likely to continue at these high levels into next year, given that
the returns to farmers are higher in sugarcane than in other crops,
in spite of the delay in payments for cane arrears.
SUGAR
PRICES
The
Indian sugar industry operates under a dual pricing system for its
sugar output. These are levy prices and free market prices.
Levy
prices – The government procures 10 per cent of the sugar for the
public distribution system (PDS) at a subsidised price called the
“levy price”, which varies from region to region. The government announces
PDS sugar prices based on levy sugar prices fixed by it and the subsidy
is provided through budgetary system.
Free
market prices – The remaining 90 per cent of the production by sugar
mills can be sold in the open market, but only up to a fixed quantity
as decided by the government for each factory each month (monthly
release quotas), based on the demand-supply situation in the country.
During
October 2002 to June 2003, the average price of free market sugar
was Rs 12,050 per tonne as compared to Rs 14,130 per tonne during
the corresponding period of 2001-02. This implies a steep 14.7 per
cent fall as against a nominal 2.2 per cent decline recorded in the
corresponding period of 2001-02. The March, April and May 2003 prices
witnessed a year-onyear fall of 18 per cent, 16 per cent and 16 per
cent respectively. May 2003 was the fifteenth consecutive month that
registered a price fall. Sugar prices dropped to these low levels
due to the dumping of sugar in the open market by the mills.
SUGARCANE
PRICES
Each
year, the Government of India declares a Statutory Minimum Price (SMP)
for cane. In some states, such as Punjab, Haryana and Uttar Pradesh
the sugar mills have to pay the effective State Advised Price (SAP)
for the sugarcane, which is 20-25 per cent above the minimum support
price (MSP). The successive increase in cane prices in the past years
has translated into an abnormally high cost for the production of
sugar, now estimated at $270-280 per tonne, in addition to causing
the current supply glut in sugarcane and sugar.
The
high cane prices, which are out of line with market conditions, might
force several factories to shut down. Although the local industry
has been strongly advocating rationalisation of the cane pricing policy
(by linking it to sugar prices in the domestic and world markets),
the political muscle of the farmers’ lobby has forced the Government
of India and various state governments to maintain the current policy.
A
rational and market-driven relationship between input (sugarcane)
costs and output (sugar) prices needs to be established. In the absence
of rationalised cane prices across the country and without complete
decontrol of the sector through the removal of the levy and freesale
release system, there is little scope for the sugar industry to become
competitive.
SUGAR
EXPORTS
The
huge amount of standing sugar stocks has forced the Indian Government
to encourage exports by offering a reimbursement of the cost of surface
transport of exportable sugar from factories to ports, (as agreed
in July 2002) and an ocean freight subsidy of Rs 350 per tonne. The
benefits also include a state subsidy on exports and an exemption
from levy obligations on the quantity of sugar exported.
The
exports in 2001-02 were 1.06 million tonnes, while in 2002-03 (October-May)
the figures have so far reached 1.43 million tonnes. The export for
2002-03, total, is estimated at 2 million tonnes. The prices received
by exporters for world market sales are unlikely to improve in the
near future. The world sugar output in 2002- 03 is expected to be
up, at 143.1 million tonnes (September-August) from 138.2 million
tonnes last year, and the current structure of the world white sugar
futures suggests that prices will continue to be under pressure for
the coming year.
IMPORTS
Sugar imports are negligible in India as there is a high customs duty
of 60 per cent plus a countervailing duty of Rs 850 per tonne. In
addition, the government’s policy is to subject imported sugar to
a levy requirement and market release quotas, while tightening the
norms for duty-free import against re-exports.
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