Tuesday, January 31, 2012

Sugar decontrol: We need policy action, not committees

Sugar decontrol: We need policy action, not committees

Do we need yet another committee on sugar decontrol? The issue has been discussed threadbare: at least two committees had earlier pushed to free the industry from controls. States set the minimum price that should be paid to farmers growing sugarcane. Before elections, incumbent governments try to sweeten the deal for farmers by pushing for high cane rates. In years of glut, when sugar prices fall, mills delay payments.

After years of creeping reform, even today mills are forced to sell 10% of their output to states at pre-determined prices for the public distribution system. India needs a more efficient system than quotas to get sugar to the poor. Many mills, funded by sugar cooperatives controlled by politicians, are too small to operate efficiently. Surely, more than 650 mills are too many to crush 20 million tones.

The industry needs to run along commercial lines to get in shape. Cane growers and local mills enjoy a symbiotic relationship with each other. Neither can do without the other. India does not allow mills to grow cane, and our cooperative rules work against the interests of farmers.

These controls should go. Mills should be allowed to own plantations, as they are in Brazil. Farmers' groups should be allowed to set up companies to operate sugar mills. These steps will create synergy from cane to the finished product.

How should sugarcane be priced? Ultimately, the price of cane depends on the price at which sugar and derivatives like molasses and alcohol can be sold. If state governments scrap the politically-motivated advisory price that they set for cane, a more rational pricing policy, based on the final output, can evolve.

The domestic price of sugar and its derivatives should be controlled by imports in a lean season and exports during a glut. Variable import duties and export taxes should replace the trade caps and bans that we now have.

With greater pricing freedom, fewer controls and state support, weaker mills will fold and consolidation will take place, creating economies of scale. The time for talk is over; the government must implement decontrol now.


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