Tuesday, December 23, 2014

The "bitter" sugar-For consumers it is sweeter!

It is said rightly that only crying babies get attention from mothers and this applies to real life situations also when those seeking the attention always cry hoarse to get the same! Latest example is the sugar industry in India which is raising a huge hue and cry regarding the dire straits it is in because its inability to stand up to the challenges of price global melt down that is happening now. Though India is one of the largest sugar producing countries in the world, it is always Brazil that calls the shots in the sugar market because of its large cultivation area under sugarcane. This is understandable because this country has an agenda different from that of India as its mandated policy of alcohol blending with fossil fuels to the extent of 15% calls for huge production of ethanol from sugarcane which is being done directly from sugarcane juice itself rather than through the molasses route. This gives it a flexibility to switch the product mix depending on the market conditions. Due to its sustained efforts to expand sugarcane cultivation it extended the acreage by deforesting thousands of acres of forest land which in the end analysis might not turn out to be prudent because of its impact on climate changes. Any how at present it is enjoying an advantage in sugar production and it is true that a glut like situation has developed resulting significant price depression in the global sugar market. Here is a commentary on this development on which Indian sugar industry feels threatened.

"The apex body of Indian sugar industry red flagged "challenging situation" for the sector due to falling prices of the sweeteners, excess production and tightening of lending by banks that is forcing millers to sell at cheaper rates for generating cash-flow. The industry also expressed its fear of Brazil producing more sugar than ethanol because of falling crude price, which may make the situation worse for them. Raising the fear from Brazil, which could have serious implications on the international price of the sweetener, Indian Sugar Mills Association (ISMA) president A Vellayan said, "On the international front, due to the steep fall in oil prices, there is clear possibility that what might happen in Brazil is the shift from ethanol to sugar production. With the Brazilian currency falling, the price of Brazilian sugar will be so cheap that it will threaten to come into India and despite the import duty, it will be cheaper than Indian sugar."  He said government must take all possible steps to ensure that no quantity of sugar gets imported. "That's why we are demanding 40% increase in import duty and extending the subsidy for export of raw sugar so that we can export our raw sugar before the prices fall further," Vellyan said. Brazil is the biggest producer of sugar and ethanol as well."  

Added to the production glut, Brazilian currency is also depreciating making its sugar cheaper than that of India. Whether the government of India will listen to the Association and put restrictive controls on sugar imports or increase the import duty remains to be seen. Sugar scenario in India is very complex and no single step by the government can restore stability to the sugar trade.Farmers are encouraged to go in for sugarcane cultivation by providing irrigation facilities and imposing minimum support prices at which sugar mills must buy the cane from the farmers. Also there are still some controls on release of sugar by the mills in the open market , the so called "free sugar" because of government's need to buy sugar at low prices to feed the public distribution system in the country. Thus sugar may be bitter for the mills at present because of declining prices but consumers should have no complains at getting sugar at cheaper prices! However how this distorted conditions will work out for the farmers as well as the industry in the long run must concern the government which has tied itself into knots through short sighted policies during the last 5 decades.


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