Now Swallow The Bitter Pill

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No amount of sugarcoating can bridge the alarming demand-supply deficit of sugar in India, reports Manav Chopra

 

Photo: Tarun Sehrawat

THE STEEP fall in sugar output over the last two years — following the preceding three years’ surplus — would never have happened had the officials who deal with sugar only been a little less shortsighted. Indeed, the crisis is entirely manmade. When sugar production dropped in 2004-05, officials blamed it all on drought. But when asked why sugarcane producers have been switching to wheat, paddy and other crops — after registering record exports of 50 lakh tonnes India is re-emerging as a net importer of sugar —no one had an answer.

How do policymakers justify their decision to restrict exports when sugar production was peaking? By the time the resulting glut made them reverse course and subsidise exports, many sugarcane farmers had already begun to take advantage of the big rise in the minimum support prices of wheat and paddy, and also of cash crops like oilseeds and pulses. As a result of switching to other more profitable produce, Indian sugar output fell by 120 lakh tonnes during 2008-09 — the steepest fall since the crisis unfolded.

This downward trend shows no signs of abating. “In mid-2009, the government made some rather bad choices. First, after the supply deficit, futures markets indicated an impending steep rise in prices. The government should have imported at least two million tonnes to bridge the gap and reduce prices. But instead they banned futures trading,” laments Anjani Sinha, CEO of Multi Commodities Exchange (MCX).

This major misstep has caused domestic sugar prices to shoot up by 79 percent to Rs 33 a kg in the quarter that ended on December 31, 2009. Initial hopes that imports would help compensate for the fall in domestic production have also been dashed, because sugar prices in global markets have risen steadily since November 2008. The current price at $700 a tonne translates to about Rs 35 a kg. Paired with high local prices, imports are impossible.

Anticipating lower sup pl ies of imported sugar, millers have continued to raise prices in their tenders. “Despite this, demand hasn’t fallen,” says a member of the Bombay Sugar Merchants Association (BSMA). It was pegged at Rs 49 per kg in the last two weeks. In a bid to bring down prices, the government recently hiked up the proportion of levy sugar by 10 percent.

Going forward, the concern that supplies will continue to trail demand has caused the price of sugar, of which India is the world’s biggest consumer, to touch its highest level in the last four years. This is because global prices too have rallied, with those in New York more than doubling since 2009 — the highest in nearly 29 years. What’s worse, the two successive weak monsoons that India has suffered, the weakest since 1972, have only widened this supply deficit. Current estimates for this season are 16 million tonnes, compared to 14.7 million tonnes in the preceding period. The annual requirement is 23 million tonnes. So how is this startling deficit of seven million tonnes to be met? Don’t ask, because the mandarins don’t have an answer.

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