The sugary tug of war

With the continuing blame game of ever high sugar prices between the centre and the Uttar Pradesh government, the retail prices are not known to come down any soon. Sugar is selling at Rs 50 per kg in retail markets in Delhi and almost at the same rate across India, more than double from the level in January 2009.

India, the world's largest sugar consumer and currently a leading importer, after production fell two years in a row, needs 23 million tons of sugar annually. The country is expected to produce only around 16 million tons in the crop year. With farmers raising the farm gate price of sugarcane to 240 rupees per quintal from 140 rupees a year ago, costs have escalated and are likely to rise further as cane supply gets scarce in the coming months.

In the international market, sugar futures are trading near a 28-year high of 27.49 cents a pound, mainly because of anticipated shortages in India. India allowed tax-free imports of raw and white sugar in April to improve supplies in domestic markets, spiking benchmark prices in New York and London. India has contracted to import 2.9 million tones of raw sugar and 0.9 million tones of white sugar in the season that began in October. After being a net importer for two straight years, the country may become self-sufficient in 2010/11, as per the assurances from the Govt.

Uttar Pradesh government has imposed a ban on processing of imported raw sugar since the farmers' protest over cane prices in November, leading to about 8 lakh tonnes of raw sugar lying at ports. Imported raw sugar has been lying at the ports for more than two months and the UP government is not allowing millers to process. On the other hand, the UP govt is openly blaming the Central policies for the muddle, which encouraged hoarders and blackmarketeers and suggested for revamping the policies. The Agriculture Ministry has already written to UP government for lifting the ban on raw sugar processing and accepted that they have not been able to convince the state govt, and will try to request at the highest level.

The central government missed all the red flags that pointed to a sugar shortage for almost a year, generated sharply varying estimates of cane production, and kept prices artificially depressed from October 2008, due to the state elections, leading to a situation where sugar prices is at about Rs 50/kg today, and likely to only rise further. The agriculture minister was not even ready to accept the insufficient production last cane season ending September – November and most of the times reiterated that we have enough stocks to keep the prices under tab. A report even revealed that the incumbent Govt. and Mr. Pawar was aware of sugar crisis a year ago. In the case, they should have imported sugar six months ago when the sugar prices of import was just Rs.17 per kg. Sensing the crisis, the exporting countries hiked sugar prices knowing that India was going to import sugar. Sharad Pawar’s promise of bringing down the retail prices of essential commodities, including sugar within one week to 10 days, following the measures unveiled by the government is fading way. And now he is conveying that the wholesale prices have come down to 10-12 per cent during last 2-3 days and its impact can only be seen in retail after some time. Mr. Pawar should have been more empathetic and should have restrained from making insensitive comments of not being a fortuneteller and sugar prices will be high for the next three years, the moment sugar prices started defying gravity and reached Rs 50/ kg!

In situations of insufficient availability, the millers would have processed an additional 2.5 lakh tons per month. If this extra processed sugar could become available, this would have brought down prices. Besides, states should take stern action against hoarders and speculators. Additionally, steps should be taken to check smuggling of sugarcane and sugar from India to Nepal and other neighbouring countries. The govt. has already given green signal to the duty free sugar imports till December 2010, but it has to be adhered by the state and the essential commodities act has to be brought into action to contain the damage that has already been half done. So, with the Govt’s decision for importing 40 lakh tones of raw sugar, it is hoped that the situation would turn a bit placid. The regular imports would be allowed to ease the inflation and meanwhile, the current agriculture policies particularly, the marketing and pricing policy needs to be given a relook.

The lack of policy co-ordination among the Centre and States is also hindering government efforts to control prices. While the central government has been encouraging sugar mills to import raw sugar, the Uttar Pradesh has put ban on imports by mills in the state, resulting in some 900,000 tons of raw sugar being stuck at Indian ports. Some of the provincial governments are also slow to utilize the full quota of food grains released by the central government for distribution through welfare programs. While government officials have publicly stated they expect prices to fall in the coming weeks, fresh steps to control prices are a clear sign that the situation is still not under control.