Thursday, December 16, 2010


Though sugar is a much despised food and beverage ingredient being implicated in many health afflictions, there does not seem to be any let up in the demand for this commodity from users all over the world as reflected by the high prices prevailing in the global market. This is in spite of the fact that there has been a marked shift from white sugar to High Fructose Corn Syrup (HFCS) in most of the processed foods in many developed countries because of price advantage. Probably demand pull is coming from the direct consumers such as families, candy makers, restaurant sector and others who do not accept HFCS as a sweetener. India is the major country that produces sugar from cane, its production being the largest in the world. But sugar "politics" can be intriguing as the stake holders like politicians, sugar cooperatives and large users can distort the picture with disastrous consequences. Though sugar is considered "unhealthy" GOI guarantees adequate supply to consumers through policy orchestrations that holds the industry on a tight leash. It was in 2009 GOI imposed ban on sugar export to prevent "unrest" amongst the people as there was considerable dip in the domestic production of sugar. Suddenly India finds itself saddled with surplus sugar this year and the export policy has been revisited with clearance for export of limited quantities on a "quota" basis. What impact it will have on global sugar prices remains to be seen.

"Sugar exports are set to begin next month with the government likely to expedite the processing of applications from sugar mills for release of about 5 lakh tonne of sugar for exports . It is likely that the release order for export of sugar under the open general license will be phased out over a period to ensure that substantial quantity of sugar does not get exported at one go. "We now expect to have enough leeway to accommodate all stakeholder obligations even as we allow industry to export to strengthen their finances," an official in the know said. Last week, food minister Sharad Pawar suddenly upped, for the first time, sugar estimates for this year by 1.5 million tonne to 25 million tonne, at par with industry estimates . Large exports from India could swiftly depress global sugar prices, frittering away the very advantage that the sugar mills and exporters from here hope to gain . This is the first time in nearly 15 years that the Indian sugar industry finds itself in a position of projected plenty even while the global market is experiencing supply tightness and firm prices. Raw sugar has risen to a 29-year high in New York on the apprehension that India may not allow too much exports. White, or refined, sugar for March delivery closed at $751.10 a tonne on NYSE Liffe in London by October end. The industry expects to produce nearly 25 million tonne of sugar this year and given the temptingly high prices outside, it is loathe to miss the chance to export and firm up its bottomline expeditiously".

Looking from another angle, India must feel happy that it can call shots in the world sugar market and as GOI wants to maximize the returns from exports, a "programmed" release of quota is being planned. There are already grumblings amongst sugar producers regarding the low quantum cleared for exports and it is unlikely that most of them will be benefited by this "liberalization" policy. The average price of sugar in the international
market is around Rs 32 per kg almost on par with the ruling domestic price. As such there may not be much benefit from exports though the country can earn some foreign exchange. The sugar policy of the GOI has never been based on realistic considerations and industry-friendly government invariably tries to maximize the returns to the sugar mills through control on its release into the market every month. It is a paradox that under the free market economy being promoted in the country, the sugar industry prefers a control regime to prevent any price crash that would benefit the consumers at large. There is an apprehension that sugar cane milling will become unprofitable if a free market is allowed to flourish because of depressed consumer prices.

No comments: