FRIDAY 29TH NOVEMBER
This is an article from Business Line Paper
appeared on 29th November, 2013
Please
click on the following link to read :
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FOR EASY READING
BITTER POLITICS OVER SUGAR PRICING
Tejinder Narang
This
year perhaps is the first time since 1976 that there is no single unified pan-
India policy for the sugar sector. All States governments are deciding sugar
cane prices or policies at their will, creating intra –state distortions in
production, marketable values and exports. The nation stands divided by sugar.
Apparent
absurdity has ascended to a level where the price of output- finished product-
(sugar) equals input cost of sugarcane with traditional rate of recovery. Threats
of farmers and counter threats by mills especially in Uttar Pradesh & Maharashtra
are reflection of impending uncertainty in this sector. About 70% sweetener is
produced by these two states.
The
“sugar environment” at the beginning of 2013-14 season has altered.
First, the Centre decontrolled release and levy mechanism in April 2013,
which created instant surpluses in the market. Second, because of election
year, political pressures are mounting to balance interests of cane-growers,
millers and consumers.
In
less than eight months from control to decontrol and then back to active and
ad-hoc interventionism by the Centre, represents break down of liberalized
profile that is under threat of reversal or modification. Briefly, new sugar
policy has gone paralytic. Political doctors are attempting procedures for revival
of severely diabetic patient.
Rangrajan
committee
Rangarajan
Committee report on sugar decontrol mentions “Rationalization of sugarcane
pricing and liberalization of sugar trade need to be introduced over a two
to three year period, in a calibrated and phased manner. However,
levy sugar obligation and administrative control on non-levy sugar need to be dispensed
with immediately”. (Page 10 para 13 of the report).
A
committee headed by Principal Economic Advisor to the Prime minister, an
eminent Economist, cannot suggest a two-stage or split recommendation unless
compelled politically. Rangarajan committee and the UPA Government erred in
deferring the issue of sugarcane pricing to an unchartered territory. That is
why the mess this year.
Uttar
Pradesh
The
trigger point is the last year State Advisory Price (SAP) for sugarcane of Rs
280/qtl (or $44/mt) of Uttar Pradesh
(UP). Now, farmers are echoing SAP of Rs 300/qtl plus (or $48/mt). The result--
mills are saddled with massive liability of sugarcane arrears due to
non-remunerative market prices.
Since
higher Indian sugar output (about 25 million tons) is foreseen in 2013-14 plus
9 million tons of carry in vs demand of 23 million tons, open market value may
further decline below last year level of Rs 28-30/kg. Mills can lose heavily
under such conditions.
Millers
opine Rs 225/qtl (or $36/mt) in UP as the limit for viable operations, that is
almost at par with other states (Maharashtra/Karnataka/Tamilnadu), after
factoring percentage of rate of recovery.
UP
Government finds itself in a bind. How can Socialist Party (SP) Government of
Mr. Akhilesh Yadav afford to reduce the SAP when annual inflation
is around 8% per annum? Nevertheless, Akhilesh administration has refrained
from hiking it above Rs280/qtl(or $44/mt). A stalemate between farmers, millers
and UP government has arisen.
Skewed
market
In
sugar cycle of 5-6 years, farmers claim that millers have made profits in some
of these years each time due to high market prices. The counter point is that
Government invariably intervened to check the abnormal rise in local prices,
resulting into significant loss to millers’ potential profitability. However
any additional investments made by them from accrued profits are an asset to
the nation.
The
fact being that sugar business is skewed. Markets can be right if inputs and
outputs operate on principle of free trade, rather than one side being
administered by irrational political considerations of SAP and the other side
by uncertainty of supply-demand realization.
UPA
intervention
Now,
Agriculture, Food and Finance ministries of Central Government are interacting
for bailing out both farmers and millers, though it has divested the
responsibility to States. UPA cannot sort out the matter with SP run Government
of UP. Mr Ajit Singh, Aviation Minister and of Rashtriya Lok Dal (RLD-another
ally of UPA) has chipped in. Likewise Maharashtra, led by Congress Chief
Minister is also approaching PMO for relief.
Any
Central support, if given, goes to the credit of Mr. Sharad Pawar of NCP,
though Mr. Thomas (Food Minister) implements the relief from the funds authorized
by Mr. Chidambaram (Finance Minister). Thus, NCP, RLD, Congress and SP
are vying each other for sugar vote bank. Any relaxation/subsidy means
additional fiscal deficit. That translates to erosion of value of rupee,
higher inflation and diminishing buying power of savings. But in an election
year good politics supersedes bad economics any way. BJP is silently watching
the confusion to derive its own political mileage.
Buffer
stock
Suggestions
for 2 to 5 million tons of buffer stocks have been made. Apart from concern of
fiscal deficit, the issue of storage is paramount. If this buffer is to be
stored at the premises of the mills, the surveillance on such holdings may be
controversial. NSEL scam is the case in point where warehouses reflected paper
stocks --yet, physical tonnage went missing. CAG has already commented on the
paddy stored by FCI in miller’s premises as highly objectionable and
questionable.
Exports
Exports
are not viable, due to surpluses available internationally, except for on and
off niche opportunities. Any export subsidy will violate WTO commitments. Moreover,
Brazil’s raw sugar value will further plunge down to match Indian competition.
Remedy
An
emergent solution lies in approaching Supreme Court for authorizing “Fair Remunerative Price” (FRP)
announced by CACP, even as an “interim order” as the basis for sugarcane
pricing for 2013-14—that is Rs 210/qtl or $33/mt at 9.5% recovery rate, with
pro-rata hike linked to higher recovery on pan India basis. This will end
diverse policies in different states.
The
cause of judicial action has already arisen; the case is logical and doable
legally with data, analysis and recommendations of Rangrajan report. The
Governmental route may be messy and time consuming unless worked through an
Ordinance for forthwith implementation of second phase of Rangrajan report,
which may involve Election Commission consent as well.
