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Expecting a large increase in sugar production, Minister for Agriculture Sharad
Pawar told the Parliament that the Government is considering allowing its export
but said that a review is required in October based on actual output. Farmers
all over India have greatly increased acreage of sugar-cane as it is a quick
cash crop but is extremely harmful for the environment because of the amount of
water and fertilizer it needs. In states like Tamil Nadu, Andhra Pradesh,
Karnataka, and Maharashtra, where there is perennial water shortage and heavily
dependent on monsoons for planting and irrigation. Sugar production from Tamil
Nadu is expected to be 1700% more than the previous year.
State-Wise Sugar Production (In 1 lakh ton crystal weight)
Despite the huge rise in production, sugar prices have gone up primarily because
of supply issues and also because of increase in input costs. The Government
announced relaxing its sugar import policy and prices started to ease but delay
in policy announcement and implementation has caused prices to rise again. It is
not clear how this export policy will affect the price situation.
The production of sugar in 2003-04 and 2004-05 was 13.95 million tons (mt) and
13.0 mt respectively, while the consumption was 17.5 mt and 17.14 mt during
these periods. However, since this year is expected to have a higher output,
India is once again set to emerge as a net sugar exporter after being an
importer for the past two years. Assuming that the domestic prices remain below
international sugar prices, 2006-07 exports are forecast at 1.5 mt.
|
State |
2004 / 2005 |
2005 / 2006 |
2006 / 2007
|
|
Final |
Revised |
Forecast
|
|
Andhra Pradesh |
9.8 |
11 |
12 |
|
Bihar
|
2.5 |
4 |
4 |
|
Gujarat |
8 |
12 |
12.5 |
|
Haryana |
4 |
4 |
4.5 |
|
Karnataka |
10.4 |
17 |
18 |
|
Maharashtra |
22.2 |
52 |
62 |
|
Punjab |
3.2 |
3.3 |
3.5 |
|
Tamil Nadu |
1.1 |
18 |
18.5 |
|
Uttar Pradesh |
50.4 |
57 |
62 |
|
Others |
5.4 |
6.7 |
7 |
|
Total |
126.9 |
185 |
204 |
|
Source: 2004-2005: Indian Sugar Mills Association
2005-2006 and 2006-2007: FAS/New Delhi Estimate |
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Since international prices are much higher than domestic levels, the possibility
of importing sugar is not likely. Industry bodies say that through February
2006, India has exported about 148,000 tons mostly to neighboring markets like
Pakistan, Bangladesh, and Sri Lanka. Currently, the industry has permission to
export 600,000 tons but the earnings opportunity due to higher international
prices has caused increased lobbying to secure higher numbers for export.
Pawar, who comes from
Maharashtra
and is beholden to the sugar lobby, is under a lot of pressure to ease up
restrictions. While the concept of free market and increased foreign exchange
inflows is central to global economy, the Government needs to weigh this against
the pressure of this policy will cause on sugar prices and the consequent effect
on inflation and monetary policy. Increased inflation will cause a higher
interest rate regime which will slow down growth, job creation, lower foreign
direct investment flow, and consequently much worse than the benefits of an
unbridled export policy which would benefit only a few sugar mill owners.
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