Financial Daily from THE HINDU group of publications
Wednesday, Dec 10, 2003
Agri-Biz & Commodities - Sugar
Global sugar body prescribes bitter SMP pill to Govt
Chennai , Dec. 9
IT's now the turn of the International Sugar Organisation (ISO) to prescribe a bitter pill to the Indian Government. It is in the form of a suggestion to end the practice of statutory minimum price (SMP) for sugarcane and further de-regulate the sugar sector.
This suggestion has been put forward after the organisation, including its internal arm MECAS, deliberated on the global sugar market scenario.
The global sugar body is worried over the fact that India has exported four million tonnes of sugar during the last three years.
"It has put pressure on the world market, especially after the country emerged as an exporter from nowhere," says an organisation insider.
"India was a subject of great attraction (at the ISO meet)," the insider says.
The meeting of the internal arm, in particular, questioned the Government's policy, which has regulated as well as de-regulated the sugar industry.
"Maybe, the topic was discussed as the sugar body has not understood our policies properly," an industry source said.
The issue has cropped up since global prices have crashed sharply in the last couple of years. From a level of $220-$240 a tonne f.o.b three years ago, the prices have now slid to around $180.
This has particularly affected Brazil, the world's largest sugarcane producer. Brazil is expected to produce 30 million tonnes of sugar this year. Thailand, which is projected to produce around six million tonnes this year and export over four million tonnes, has also been hit by Indian exports.
"You now also have the European Union dumping sugar in the global market. All these have added to the pressure on the prices," the insider says.
"The sugar body feels that Indian exports are up due to various concessions extended by the Government. It has also expressed concern at the over 10.5 million tonnes stocks in India," he says.
The general feeling of ISO is that the sops have led to the price being pressured in the global market, as a result of which other producers are being forced to toe the same line. "India isn't alone in extending concessions. Even Thailand extends such subsidies to its farmers and the sugar body has expressed concern over that," says the insider.
"The organisation, in short, has asked India to give complete freedom to the sugar sector. It especially wants the monthly release mechanism for the mills to go besides ending SMP," the insider said.
The Government embarked on deregulation of the sugar sector after a committee headed by former Union Food Secretary, Mr B.B. Mahajan, submitted a report in 1998. However, it has been only partially implementedwith the Government facing opposition in implementing some measures. The Mahajan commission, however, has warned the Government against tinkering with the monthly release mechanism. The Government has made it clear that it will totally decontrol the industry after taking steps to rationalise sugarcane prices and initiation of futures/forward trading.
One of the measures being opposed is ending SMP, which ensures that the farmers are paid a minimum price fixed by the Government. But the State Governments usually fix a State advised price that is higher than SMP and the mills have to statutorily pay to the farmers.
As per the release mechanism, the Government fixes the quantum of sugar than can be sold by the mills every month. The Government did try to fix the release quota quarterly. But it led to crash in sugar prices, resulting in the industry urging the Government to restore the monthly release mechanism.
As regards SMP, it has begun affecting the crushing mills, leading to pending of huge arrears to farmers.
"We don't think the Indian Government will pay much attention to concerns expressed by the organisation or the industry over SMP. It is a political issue, " the insider said.
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