NEW DELHI – More than a month into the new sugar season, the industry is still waiting for the Centre to announce its export policy for the sector. This, when the industry has become used to policy crutches for its very survival.
What makes the situation more perplexing is the fact that just last year, the industry had delivered record high exports of 5.8 mln tn. Then, the Centre had announced subsidy of 10.45 rupees per kg a month before the sugar season began, helping mills sign export deals early and decide on production likewise.
ANALYSIS
And while the food ministry was ready with a draft policy this September too, a tussle with the finance ministry dragged the politically sensitive sector onto an entirely different path.
Examples of tardy policy-making in the sector aren't hard to cite. Discussions on increasing the minimum selling price of sugar by 2 rupees per kg had started in June and a Cabinet note was also prepared. Since then, the note has all but disappeared, and has not been talked about again.
Another case is that of the buffer stock scheme, which ended on Aug 31. With no one revealing the way forward, what happens next is anyone's guess.
The impact of the COVID-19 pandemic has only added to the sector's cup of woes, as the weak state of government finances means the Centre is not keen on providing support. While there is scope for a broader conversation on whether a sector should be allowed to survive purely on fiscal support, a tough year like the current one might not be the best time to effect drastic changes.
It is this hope that the government will step in, albeit belatedly, and announce the export policy sometime this month that may provide some cheer to the sector. Officials from the food ministry have communicated to the industry that they are hopeful of the finance ministry signing off on the export policy, even if it involves a lower subsidy amount, within the next two-three weeks.
The road to a sugar export policy, whenever it is announced, has not been without its share of drama.
Last week, Food Minister Piyush Goyal, who only recently took charge of the ministry, said the government wasn't considering providing any subsidy on sugar exports this year as international prices were stable. The headlines that followed led to a virtual meltdown in the industry.
The very next day Goyal tweeted that he had held discussions on the difficulties being faced by the sugar industry, along with the need to increase the export of sugar and make value addition.
The damage-control notwithstanding, stability in international sugar prices could be a reason why the government hasn't announced an export subsidy policy yet. It may be waiting for global prices to rise further and reduce the gap with domestic prices, which would help keep the subsidy burden lower.
Global prices, which have already increased nearly 13% over the last two months, are expected to rise more in the coming days. This, in part, is due to the uncertainty over India's sugar export policy, which makes it difficult to gauge global demand-supply dynamics.
As delay in announcing the policy impacts signing of deals, supply from India could see elongated delivery cycles at a time when global trade chains have already been impacted by restrictions on transport in view of COVID-19.
Speaking after the announcement of Balrampur Chini Ltd's earnings for Jul-Sep, Managing Director Vivek Saraogi called for a clear sugar export subsidy policy for the next two-three years, and said he expects the policy for this season to be announced soon. However, in what could be an indication of where the industry is headed in the absence of government support, he said the company would now look to bring down its exports and focus more on ethanol production.
One school of thought believes that if an export policy isn't announced by December, it is unlikely that any subsidy will be announced at all. Trade houses are already working out the price levels at which India will be able to sell its produce if no subsidy on exports is announced.
The current price range of 14.5-15.0 cents per pound translates into 25.0-25.5 rupees per kg, which means Indian exporters will incur losses of around 6 rupees, as the minimum selling price is currently 31 rupees a kg.
In such a scenario, there will be problems aplenty.
Not having an export policy means huge carryover stocks within the country. India may also lose its share in the global market to Brazil, the largest producer and exporter of sugar. The Latin American nation may be best placed to push more of its produce into the world market, and sign contracts that would have otherwise been inked by Indian exporters.
Being unsure of the deals to be signed also presents challenges in terms of production. The output of sugar in 2020-21 is estimated at nearly 32 mln tn. With the carryover stock of 10.5 mln tn from the previous season, the total supply will stand at 42.5 mln tn. Considering domestic consumption of nearly 26 mln tn, the extra 16.5 mln tn could lead to a collapse in the domestic market and prices may breach the minimum selling price.
Market players say that without an export policy, ex-mill prices may fall below 27 rupees a kg and mills may have a tough time clearing sugarcane arrears, which may hit alarming levels in 2020-21.
While some say the government may be waiting till after the Assembly elections in Bihar, the counter view is that it should have announced the export scheme well in advance, in September itself.
The government is party to how much sugar mills can sell every month and the price they pay farmers for the cane purchased. With such deep involvement of the government in how basic elements of the sector play out, uncertainty on the government's thinking is unfortunate for the industry. By not announcing an export policy in time, the efforts of the Centre and the industry over the last two years may come undone.
To be fair, the government has provided the industry a way to avoid building excess sugar stocks by going for ethanol production, but these seem like piecemeal steps. Ethanol capacity has to be built over time, and policies and approvals have to come together with capital for a shift to take place. With no overnight solution, there has to be a period when pushing out excess stock of sugar happens through the lucrative export market.
A good way to start would be to move beyond a short-term export subsidy policy and consider an announcement that covers not just subsidy, but also the need to wean the industry off crutches. A consistent policy framework that is not impacted by the exigencies or vagaries of government decision-making may well help the sugar industry find its feet again. End