Sugar prices have been continuously rising since past few months. It was predictable. Sugar experts all over the country had warned the government through their analysis about the mismatch of demand and supply; and how the prices would rule firm in the near future. In my earlier blog, I had mentioned how sugar prices would rule firm at the year end. The agriculture minister was wrong from the very beginning. Though, it has allowed sugar mills to import duty-free sugar against advance licenses (AL) on a ‘tonne-to-tonne’ basis, yet the decision came very late. Already, sugar prices are ruling very high.
A few weeks back, the agriculture minister Sharad Pawar had said that the production in India would fall to around 18 million tones from 26 million tonnes a year ago. Yet, the ministry was reluctant to allow imports. The difference in opinion between the agriculture minister and the commerce minister has affected the sugar sector badly. Yet, the decision will bring some cheers to all those involved with the sugar sector. I will explain the reason for saying some cheers.
With this decision, the mills can now import the duty-free sugar and sell it in the domestic market after reprocessing it into white sugar. The export obligation can be made later on from the domestic production, but within two year. This will help bring down the prices by making available more sugar in the market. According to earlier policy, which believed in ‘grain-to-grain’, the mills that were allowed to import raw sugar had an obligation to re-export the same consignment after reprocessing it within two years of the AL being issued. But, the present policy means that the mills can meet the export obligation by processing cane independently.
Though, in the near term prices may cool a bit, yet, in the long run the sugar sector will see many happenings. The prices will climb to a new height unless government comes out with more liberal policies for this sector. The reports coming from various quarters indicate that the production of sugar this year will fall even below the expected 18 million tonnes. It should be noted that last year due to average monsoon in the sugarcane growing areas of Maharashtra, farmers had converted their standing cane for fodder. Poor monsoon led to poor production of fodder; hence, farmers had no other option but, to convert their crop into fodder. So, the farmers then chose to harvest the cane for fodder rather than waiting for the crops to mature to sell it to the sugar mills.
Sugar recovery too this year is expected to fall drastically. Sugar recovery is the percentage of sugar mills extract from every tonne of cane crushed. The average recovery in Uttar Pradesh so far this season has been 8.8 per cent against 9.48 per cent in the same period last year. As a result, the overall production in the state is expected to fall. Lower recovery of sugar is due to cane plant suffering damage from the frost.
Even the area under cultivation was lower last year as the mills were (are) not in a position to pay farmers the State Advised Price (SAP). At the same time, due to poor monsoon, yield too fell to around 32 tonnes a hectare from 58 tonnes a hectare in the year 2007-08. One thing that the government needs to carefully examine is the pricing of cane. What should be the right price for the mills to be able to pay to the farmers? More important, who should dictate the price? It is irony that the Union Government comes out with Statutory Minimum Price (SMP) and the state comes out with their State Advised Price (SAP), usually much higher than the SMP to score brownie points without realizing the implications of such policy. When the prices rule very high and the consumers are in pain, it is the Central Government that has to act and not the state government. So, why should a state be given a right to decide the pricing of cane when it doesn’t come into picture?
Due to poor availability of cane for crushing, most of the mills are expected to shut their crushing by March end. Normally, crushing continues till April. In Maharashtra, out of 145 mills that had started crushing this season, 14 have already closed, compared to one out of 165 mills last year (2007-08). So, the overall picture looks bleak for the sugar sector. In the near term, prices will rule in a range as the government will ensure sufficient supply in the market through free sale quota (FSQ) as this is a election year.
A few weeks back, the agriculture minister Sharad Pawar had said that the production in India would fall to around 18 million tones from 26 million tonnes a year ago. Yet, the ministry was reluctant to allow imports. The difference in opinion between the agriculture minister and the commerce minister has affected the sugar sector badly. Yet, the decision will bring some cheers to all those involved with the sugar sector. I will explain the reason for saying some cheers.
With this decision, the mills can now import the duty-free sugar and sell it in the domestic market after reprocessing it into white sugar. The export obligation can be made later on from the domestic production, but within two year. This will help bring down the prices by making available more sugar in the market. According to earlier policy, which believed in ‘grain-to-grain’, the mills that were allowed to import raw sugar had an obligation to re-export the same consignment after reprocessing it within two years of the AL being issued. But, the present policy means that the mills can meet the export obligation by processing cane independently.
Though, in the near term prices may cool a bit, yet, in the long run the sugar sector will see many happenings. The prices will climb to a new height unless government comes out with more liberal policies for this sector. The reports coming from various quarters indicate that the production of sugar this year will fall even below the expected 18 million tonnes. It should be noted that last year due to average monsoon in the sugarcane growing areas of Maharashtra, farmers had converted their standing cane for fodder. Poor monsoon led to poor production of fodder; hence, farmers had no other option but, to convert their crop into fodder. So, the farmers then chose to harvest the cane for fodder rather than waiting for the crops to mature to sell it to the sugar mills.
Sugar recovery too this year is expected to fall drastically. Sugar recovery is the percentage of sugar mills extract from every tonne of cane crushed. The average recovery in Uttar Pradesh so far this season has been 8.8 per cent against 9.48 per cent in the same period last year. As a result, the overall production in the state is expected to fall. Lower recovery of sugar is due to cane plant suffering damage from the frost.
Even the area under cultivation was lower last year as the mills were (are) not in a position to pay farmers the State Advised Price (SAP). At the same time, due to poor monsoon, yield too fell to around 32 tonnes a hectare from 58 tonnes a hectare in the year 2007-08. One thing that the government needs to carefully examine is the pricing of cane. What should be the right price for the mills to be able to pay to the farmers? More important, who should dictate the price? It is irony that the Union Government comes out with Statutory Minimum Price (SMP) and the state comes out with their State Advised Price (SAP), usually much higher than the SMP to score brownie points without realizing the implications of such policy. When the prices rule very high and the consumers are in pain, it is the Central Government that has to act and not the state government. So, why should a state be given a right to decide the pricing of cane when it doesn’t come into picture?
Due to poor availability of cane for crushing, most of the mills are expected to shut their crushing by March end. Normally, crushing continues till April. In Maharashtra, out of 145 mills that had started crushing this season, 14 have already closed, compared to one out of 165 mills last year (2007-08). So, the overall picture looks bleak for the sugar sector. In the near term, prices will rule in a range as the government will ensure sufficient supply in the market through free sale quota (FSQ) as this is a election year.
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