Decontrol sugar now
There cannot be a better time to decontrol sugar, with availability being comfortable and a lean period till March for local consumption.
On October 25, the Centre, perhaps with an eye on Assembly elections in Uttar Pradesh (UP) early next year, announced hikes in its support prices of rabi crops, from almost 15 per cent for wheat to over 35 per cent for mustard. The coming week could see the Chief Minister of India's largest State, Ms Mayawati, doing something similar to woo its 2.5 million-odd sugarcane growers. Sugar mills in UP and Maharashtra — the country's two main producers — have just commenced crushing operations for the 2011-12 season (October-September). This is always a time when farmers get restive about the price their cane would fetch, with mills, too, anxious about arranging working capital to finance purchases of a raw material that makes up some 70 per cent of their total variable and fixed costs. Last season, mills in UP paid farmers Rs 205 a quintal — the State Government's ‘advised' price for normal quality cane — while the corresponding ex-field rate in Maharashtra ranged between Rs 175 to Rs 200.
This time round, growers' organisations in Maharashtra are seeking a minimum of Rs 230, while in UP Ms Mayawati would be hard put to resist similar demands by cane farmers. (She seems set to announce a hike of Rs 25 or more, much to the industry's dismay.) Millers — while privately agreeing that farmers' cultivation costs have gone up significantly to justify the rates sought – say that a cane price of Rs 230 a quintal would push up the effective production cost of sugar to well above Rs 30 a kg (excluding depreciation or interest on long-term loans). As against this, mills are realising just Rs 27-28 a kg on open market sales, with this being even lower, at about Rs 19, for the 10 per cent sugar they have to deliver as ‘levy' for the public distribution system.
What this essentially presents is a case for decontrol — the timing for which cannot be better, both economically as well as politically, than now. Sugar output during this season is expected at 25-26 million tonnes (mt). This, along with opening stocks of 6.1 mt, can more than take care of domestic demand of 22-23 mt. With no major festivals, November to March is usually a lean period for local consumption. But for farmers sugar realisations during this period matter, as they determine the cane prices mills can realistically afford to pay. This is also a time when supplies from Brazil dry up, with the new crop there due for crushing only from early April. All this provides a window of opportunity to free the industry — from levy obligations, controls on how much sugar any mill can sell in the open market in a month, and stocking limits — and also open up exports. Sugar prices firming up now, consequent to decontrol, are unlikely to hurt consumers much. But it would hugely benefit the country's largest rural-based industry – and even the Centre, which can cite sugar decontrol as evidence that reforms are still on its agenda.
-Umesh Shanmugam
No comments:
Post a Comment