INDIA: Production fluctuations could ease with reform
Published: 09/03/2010, 8:39:57 AM
Sharp fluctuations in sugar output in India, a key driver of global price volatility, can be evened out by reforms that would ensure steady cane cultivation, according to Reuters.
ndia's sugar output fluctuates unpredictably, given the uncertainty over farmers' choice of crop, frequent policy changes, erratic monsoons and inaccurate crop assessment.
Variation in initial expectation and final estimates for sugar production in India ranged 3-7 million tonnes in the last three seasons, said Jonathan Kingsman, a widely respected analyst and head of Lausanne-based Kingsman S.A. consultancy, which organised the two-day conference in New Delhi.
Experts say the government should initiate steps to liberalise the heavily-regulated sugar sector from the next season, as India is expected to have a surplus, to minimise risks of a sharp swing in prices.
"Ensuring stability in sugar prices is the first step towards decontrol," said Jayantilal Patel, president of the National Federation of Cooperative Sugar Factories Ltd, at the Kingsman India Sugar Summit in New Delhi.
"Decontrol means no subsidised sale and also absence of any release mechanism," said Vivek Saraogi, the president of Indian Sugar Mills Association, refering to policies in which the government decides how much mills can sell.
Apart from fixing how much a mill can sell, the government buys 10-20% of output at lower rates for subsidised sale to the poor and sets the price mills must pay for cane to farmers and often decides how much sugar a big buyer can store.
"Nothing can happen without giving cane growers their dues with a minimum floor price," Saraogi said.
When cane prices are raised sharply, it leads to higher cultivation and sugar production, which reduces sugar prices, and millers are forced to stop or delay payments to farmers.
This encourages a shift to other crops in the following year, creating a scarcity and high sugar prices.
Patel pointed out that the western Gujarat state had been able to limit the swing in sugar output at 10%, much lower than the top two producing states of Uttar Pradesh and Maharashtra where the swing was as high 40% in some years.
"Mechanism should be evolved to increase cane prices in sync with rise in inflation," Patel said.