On 20 February, the Indian sugar industry felt a bit relieved after the government agreed to an increased raw sugar export subsidy. But those smiles were wiped off by plummeting sugar prices. Raw sugar futures on the Intercontinental Exchange, or ICE, have fallen by 10% since 20 February, making calculations done when demanding the export subsidy go awry.

On 17 March, the Indian Sugar Mills Association (Isma) said sugar output till mid-March was up by 14% at 22.8 million tonnes (mt). And, 476 mills are still crushing cane compared with 409 last year. The government has revised its estimate to 26.5 mt, 6% higher than the previous estimate. This could go lower or even higher, depending on how the tail end of the crushing season plays out.

Puzzlingly, sugar prices are falling, but cane procurement prices are not; so, why should sugar output increase so much? Some answers could be: the fact that mills have to buy cane, farmers get part payments only, arrears keep mounting every year despite the outrage over it, and perhaps the belief that the government can be counted on to step in. photo

India’s evolving sugar surplus is an added negative for the world’s sugar balance. But Brazil’s shadow looms large over sugar, just as China’s does on metals. The dollar’s strength has hurt Brazil’s currency, which has fallen by 12% in a month. But that’s manna for its sugar exporters. That’s another reason—a strong dollar itself spells bad news for commodities. And, the rupee’s relative strength versus other emerging market currencies is bad news for its exporters.

So, where does this leave Indian sugar producers? Running into the unwilling arms of the Indian government, it seems. On 16 March, Isma has placed five demands, nay pleas, to the government. One, force state governments to bear the difference between the Centre-fixed procurement price and the much higher state-advised price. Two, create a buffer stock of 2 mt for next year’s public distribution system (PDS). Three, provide excise duty cuts or a higher incentive for ethanol. Four, give sugar mills a loan bailout. Lastly, give a subsidy for white sugar exports.

These desperate calls come as domestic prices are feeling the heat, and wholesale prices have reached a five-year low, according to The Economic Times. The government may well wonder why the industry seems to be forever in trouble.

Agreeing to some of these requests could provide a short-term fix. In the long term, full decontrol is the responsible solution. Failing that, the era of full control seemed better than this ham-handed partial decontrol.

In the era of controls, the government regulated sugar output, controlled sugar stocks and even procured PDS sugar at a fixed price. While breaking free of shackles is no doubt liberating, having one hand tied behind your back is not really fun. Sure, the sugar industry follows a cycle, so this too shall pass. And, when rising sugar prices cross the mills’ cost of production, they will rejoice. But it also means that when the cycle dips, as it will, the industry will find itself in trouble all over again.