BUFFER OF 3 MILLION TONS SUGAR CAN BE BITTER
Tejinder Narang
INDIA’S SUGAR production is to
touch 27 million tons with carry in stock of 9 million tons that indicates
total availability of 36 million tons vs local demand of 23 million tons.
Exports in the first six months of the sugar season are sluggish (not exceeding
0.2 million tons) despite subsidy of Rs 4000/mt and additional proposed subsidy
of Rs 1000 by Maharashtra Government, market is bearish through some containerised
business is reported. Supply and demand are grossly mismatched. Mills’ arrears of sugarcane to farmers are
about Rs 20000 crores on all India basis and the issue is how these can be
squared up by official intervention.
In mid- April 2015 after meeting
all stake holders, Union Food Ministry agreed to refer a proposal for building
a buffer of 3 million tons of sugar to PMO for consideration so that market
values escalate that might assist the mills in recouping losses. By shielding and denying the curative option
of reforming the steep hike in SAP (State Advisory Price) of sugarcane and
instead linking it to reasonable market determined price, the stocking of 3
million tons is akin to converting the infection into cancerous virus. The
entire concept is unworkable ab-initio.
Finances of all 500 sugar mills
are stressed and stretched. By acquiring pro-rata stocks of the mills the
controversy of first charge by the banks on the movable assets will flare up. Thus there is no surety that farmers arrears
will be paid. The matter could be litigated as usual.
Considering acquisition cost of Rs 30000 per
ton for total of 3 million tons, it entails upfront investment of Rs 9000-10000
crores and carrying cost of Rs 1200-1300 crores per annum. From where funding will be sourced? If SDF
(sugar Development Fund) is the coffer, then it is the public money that is “not”
meant for official hoarding. And SDF may not have the desired money anyway.
Will the purchase price be calculated state wise or “one price fits all”
formula applied? Can the Food Ministry afford to procure above the marked to
market price or at a fixed price (of say at about Rs30000 per ton) which could
be minimum cost of production? Transparency
will be missing if stocks are purchased above the market value.
Where will this sugar be stored? Since double
movement of commodity involves additional expenditure, the sweetener shall
remain in the warehouses of the mills. For facilitating paperwork, these stocks
may notionally be hypothecated to the Government with oversight of official inspectors
or inspecting/excise agencies. But the possession remains with the millers. Single
point accountability will be lacking. The state of affairs will be similar to
the processed/custom milled rice of FCI that remains stacked with the rice
mills on behalf of the Government. Will
the Food Ministry become an extension counter for managing surplus stores of
the industry and the mess created by the State Governments?
Large scale leakages of sugar in
the market cannot be ruled out which implies double payment to the processors.
Market prices will slide down with greater pace. Next year it will be four
million tons that Government may have to stock in, again in an arbitrary manner
because consumption is artificially articulated and production of sugarcane is
incentivized.
It is fry cry from the decontrolled regime
that was made effective in April 2013 and from which the industry unshackled
itself after many years of lobbying and campaigning. When BJP has been
championing less of Government and more of governance, the idea of buffer
militates against that principle.
The alternative is to export 3
million tons of raw and white sugar by aligning prices with world market. But
the dilemma is that subsidy on raw sugar
has not been fully effective due to depressing and fluctuation prices (see
chart). Low Crude prices and therefore low ethanol values; and depreciation in
Brazilian Real are the inhibiting factors in aggressive export from India. Even
if export of half a million tons are attained, the problem of surplus remains. In
the absence of bulk exports, conversion of molasses to ethanol will also result
in lower sugar production, provided this can be profitably absorbed by OMCs
(oil marketing companies). But these two options –exports and ethanol- cannot
give immediate and long term relief to the industry.
The agenda should be setting the
SAP right. Central Government is unable to do it because the decision to fix
sugarcane price rests with States. Rangarajan report rests in peace and formula
of 70: 30 ratios is also not being followed despite initial introduction in
Karnataka. How can price of sugar cane be political when end product is driven
by dynamics of domestic and international market? In this milieu of utter confusion, judicial
activism can help. Why not the industry hires a competent consultancy to bring
thread bare the contradictions and file a PIL in Supreme Court? Why attempt to survive
on the crutches of the Government every year?
Let the Supreme Court advice the
principle of fixation of SAP or FRP, instead of conceiving short term quick fix
solutions, which tie all stakeholders in intricate knots. It may take a little
time but it could be a lasting resolution.
