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Sugar export subsidy issues

Sugar export subsidy issues

UPSC CSE – SYLLABUS: GENERAL STUDIES-3– Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution.

Sugar export subsidy issues

Sugar industry rooting for exports:

  • At the start of the (October-November) sugar season, the industry draws up its balance- sheet and takes into consideration the expected production, the carry forward stock of last season, minus domestic consumption and exports, if any.
  • This sugar balance-sheet determines the availability of sugar for the next season.
  • In case of unusually high stock, ex-mill prices remain low for the present season as well as for the upcoming season, which result in liquidity crisis for the sugar sector.
  • For the season which has started, the annual production is estimated to be 326 lakh tonne (without any diversion towards ethanol), and the season has started with opening stock of 107 lakh tonne.
  • However, industry sources estimate sugar production being lower by 20 lakh tonne as mills are expected to produce ethanol, and thus the total available sugar balance in this season is expected to be 413 lakh tonne.
  • After deducting the domestic consumption of 260 lakh tonne, the opening stock of next season (season of 2021-22) is estimated to be 155 lakh tonne.
  • This unusually high stock, without an export incentive like a government subsidy, will result in a ‘vertical collapse of the sector’.
  • One way of correcting this inventory is to promote export of at least 50 lakh tonne of sugar.
  • Sugar mills export both white as well as raw (unrefined sugar which is brownish in colour) sugar.
  • If 50 lakh tonne of sugar is shipped out of the country, the opening stock would be 105 lakh tonne, providing the mills a healthy inventory as well as liquidity from exports.

Mills reluctance:

  • The mills’ reluctance stems from the gap between cost of manufacturing and the current price of raw sugar in international markets.
  • Sugar contracts at international markets are trading at Rs 21-22 per kg, while the cost of production is at Rs 32.
  • The price mismatch has ruled out any export prospects as this would lead to further loss for the mills.
  • Ironically, mills are facing this problem at a time when Indian sugar has made its mark in the international markets.
  • Last season, India has reported record sugar export of 60 lakh tonne, of which 57 lakh tonne have already left the country.
  • The remaining consignment is expected to leave by the end of December.
  • Other than the traditional markets of Bangladesh, Malayasia and Sri Lanka, Indian mills have also shipped their produce to newer countries like Iran, China, South Korea and Somalia.

Ethanol policy:

  • Last week, the central government has announced a Rs 1-3 per litre rise in the procurement price of ethanol.
  • This is the second signal given by the government to mills to divert cane towards production of ethanol rather than sugar.
  • The industry has estimated that this year, nearly 20 lakh tonne of sugar will be diverted towards producing ethanol.
  • Last year, the central government had announced an interest subvention scheme for mills to augment production of ethanol.
  • But diversion to ethanol, although a much-needed move, will require time to materialise. With the present capacity, mills can produce 426 crore litres of ethanol, which would require diversion of 15-20 lakh tonnes of sugar.
  • “While the government’s move to encourage mills towards ethanol production is certainly welcome, it would require more capital and time.
  • For the current season, in case exports are not made viable, not only will India lose its market share, but mills will certainly feel the liquidity crunch.
  • The effect of this will be disastrous for the sector.

Unpaid subsidy an issue:

The central government is yet to release the export subsidy due to the mills and the total due is as high as Rs 6,900 crore. Individual mills had taken loans to facilitate exports and now they have to to pay interest to the banks. Unpaid interest of Rs 3,000 crore for maintaining buffer stock has also hit hard the balance sheet of mills.

Source: ”Indian Express”.

POSSIBLE UPSC MAINS EXAMINATION:

Discuss the issues regarding sugar export subsidy. Suggest appropriate measures needed to resolve them.