The central government missed all the red flags that pointed to a sugar shortage for almost a year,generated sharply varying estimates of cane production,and kept prices artificially depressed from October 2008,leading to a situation where sugar prices in Delhi,at about Rs 50/kg today,are likely to only rise further. Instead of admitting a shortfall and being realistic about price movements,Agriculture Minister Sharad Pawar played to the gallery,saying prices will fall in a week,making traders extremely wary of importing sugar to bridge the shortfall. International trade houses have told the food secretary they will not import sugar for now, said a leading sugar trader. India produced 14.6 million tonnes of sugar in the October 2008-September 2009 season,much less than the domestic demand of 23 million tonnes. But bumper crops in the preceding seasons had helped Indian companies produce 28.3 million tonnes and 26.3 million tonnes in 2006-07 and 2007-08. So,there was nothing much to worry last season. But the government threw caution to the winds despite estimates of a shortfall in the 2009-10 season, said the promoter of a top sugar producer. Facing political compulsions to keep prices low in an election year,the government flooded the market with unwarranted releases of about 1-1.5 million tonnes of extra sugar last season. Release of sugar and production was higher than consumption, said Abhijit Sen,Member (Agriculture),Planning Commission. India went to polls in April-May 2009. Assembly elections in Maharashtra,Pawars home state,followed in October. On October 1,the retail price of sugar stood at Rs 32 In its bid to depress prices,the government ended up exhausting the entire buffer stock of 1.52 million tonnes between January and September,2009. We have opened the current season (October 2009-September 2010) with zero opening stock. Last year,we had 10 million tonnes, said another leading sugar producer in Uttar Pradesh. In fact,this producer had told the government to create strategic sugar reserves in 2005-06 when India had a bumper crop but,despite surpluses,companies could not take advantage of a lucrative export market until it was too late,since exports were banned. It is true some companies asked the government to create reserves,but the industry was divided on the issue, said Sen. Again this season,the government is making a very optimistic estimate of sugar production at 16 million tonnes,said the promoter of another big sugar company. Citing last years poor projections of cane output,he noted,that in the first advance estimate,the Agriculture Ministry projected the 2008-09 sugarcane crop at 294.66 million tonnes,which was then beaten down to 290.45 mt,289.23 mt and 271.25 mt in three following estimates. It might not be very different this year, the promoter said,adding that the country is likely to end up with just 14 million tonnes of production in the 2009-10 season too. Sen conceded that if the output estimates are not known,you can get into trouble. Domestic demand this year is about 24 million tonnes. There is nil buffer stock,and no option but to import large quantities of sugar. Pawars prediction of imminent price-fall has queered the pitch for traders. The trade does not want to import since the landed price of Brazilian white sugar is Rs 38.90/kg compared to domestic prices of Rs 38-40/kg in Gujarat and Maharashtra,leaving no room for profit. In fact,imported white sugar is powdery and sells at a discount of about Rs 2/kg compared to domestic sugar,making it a losing proposition. Pawars populism has put off importers,and this may prove costly. If sugar is not imported now,India will end up paying much more than prevailing global prices. There is limited floating sugar stock available in global markets. Brazilian sugar will be available only in May. The relaxation on import of raw sugar and whites may remain just on paper,said another trader. Raw sugar imports at Rs 32-33/kg too leave no margin for sugar producers after adding financing,transporting and processing costs,the price rises to Rs 38-39 This again compares with the price of domestically produced sugar. The politically motivated management of release orders are costing the Centre dear now,but states are doing little to ease the situation. UP Chief Minister Mayawati has refused to allow processing of raw sugar imported by mill owners in the state,citing the interest of farmers. She has blamed the Centre for its faulty import,export and sugar release policies. The situation could have been managed had the Centre allowed prices to go up over a longer period of time,say,from January 2009,rather than waiting till mid-October. This would have ensured imports at least by state-owned companies as well as by private traders. Even now,Pawar could have avoided saying prices would fall, said a producer,adding that further rise in prices would result in demand destruction,i.e.,it will disincentivise people from buying more sugar than necessary.
