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A bittersweet story

India continued sugar exports despite clear signs of a slump in production. Result: Consumers at home are paying the price, report Zia Haq and S Raju.

india Updated: Nov 18, 2009 00:41 IST
Zia Haq/S Raju

India’s household consumption of sugar is barely 25 per cent of what is produced; the remaining 75 per cent goes into commercial products, like your can of Coke.

And, the sweetener passes through controls at every step — from farm to factory, before being sold.

After three years or so of a glut, sugar production tanked due to the “cyclical nature” of the cane crop.

The shortage, coupled with faulty government policy, experts say, is driving up prices in a manner that has caused much discomfort among consumers. Sugar is currently selling at Rs 38-40 a kg, up 50 per cent from a year ago.

K Bhavani, 43, a housewife in Delhi, feels that the government is in a way encouraging the price rise. Shopkeepers will be tempted to raise prices when there is talk of a rise in the ration price of sugar, she says.

India is the world’s largest sugar producer after Brazil, but the largest consumer.

In 2006-07, India harvested a record 355 million tonnes of cane, producing 28 million tonnes of sugar. Domestic consumption stood at 20-22 million tonnes. This feat was repeated in 2007-08, with India producing 26 million tonnes of sugar.

India exported roughly 8 million tonnes of sugar together in 2007-08 and 2008-09, worth around $2 billion, and also reduced much of the sugar stocks by doling out a freight subsidy (Rs 1,350-1,450 per tonne) for exports.

By mid-2008, the crop was bad and there was a resultant slump in production during the 2008-09 season. Yet, policy-makers did not call off the export subsidy scheme in time, according to Ashok Gulati, director (in Asia), International Food Policy Research Institute.

“It was only in February 2009 that imports of raw sugar were permitted. Import duty on refined white sugar was lifted (from an earlier 60 per cent) in April 2009. But it was too late,” Gulati said.

In India, inefficient or loss-making manufacturers are politically influential and push for more sops and higher prices. Market forces balance things out in the case of other commodities. But sugar is tightly controlled, resulting in wild price swings.

Factories are required to compulsorily sell 10 per cent of sugar (called levy sugar) they manufacture to the government at below-market prices for strategic stocks. The rest, “non-levy sugar”, is for “free-sale”, but the government decides how much each mill can sell each month. For example, sensing a shortage in August, the government allowed factories to sell 1.377 million tonnes, raising the quota slightly.

“A revision of these outdated controls is urgent and (this) has been emphasised many times,” said economist and former agriculture minister Y.K. Alagh.

Farmers in Uttar Pradesh (UP) would say this of sugarcane: Ganna sab phaslon ka tau hai, yeh to bada kamau hain (sugarcane is the chief of all crops, it brings in riches). This is no longer true. With government offering far a better price for grains, cane-growers are increasingly switching to rice and wheat.

“Sugarcane has brought us misery,” said Satyendra Singh, who has stopped growing sugarcane on his land in Marakpur, 30 km from Meerut, in Uttar Pradesh.

In the nearby village of Daula in Baghpat district, farmer Krishanpal Singh says cultivators are increasingly looking to paddy and wheat as “growing sugarcane means asking for trouble”.

The government has set a fair and remunerative price for sugarcane at Rs 129.84 per quintal (100 kg), to be paid by sugar factories to farmers from October 1, 2009, instead of the earlier statutory minimum price (SMP) of Rs 107.

For UP the state-advised price is Rs 165 a quintal for the common variety, far below the rates for other crops.

Sugarcane also involves more investment than other crops. In addition, it would mean the land cannot be used for any other purpose for about 20 months after cane is grown, a period during which paddy can be grown four times.

Ironically, some of India’s sugar controls have hurt those they were meant to help. “At least, the import of raw sugar should be freed,” Alagh argued.

“There is a need to help maintain a balance between both manufacturer and consumer interest,” said S.K. Jain of the Indian Sugar Mills Association.

Alagh said the government should stop doling out a discriminatory higher “conversion price” — the cost paid for turning cane into levy sugar — for inefficient millers. “If you do away with such protectionism, some inefficient players may die but at least that will kick in efficiency,” Alagh said.

A KPMG-AC Nielsen report, a copy of which Hindustan Times has viewed, states that complete deregulation of the sugar industry will “expose farmers, millers and consumers to significant risks”.

UP farmers are now demanding a minimum cane price of Rs 280 per quintal. This could lead to their growing cane again and a deadly shortage of grains. Experts like Gulati say the government needs to break the cyclical nature of the crop by “reforming” the administrative price regime and making it market-friendly.