Sugar exporters are reluctant to continue to export due to delay in getting the export subsidy of Rs3,333 per tonne. In fact, there are unconfirmed reports that some exporters, who have taken delivery, have diverted the goods to domestic market

The sugar industry is at cross-roads today. The whole sale price of sugar has gone down to be between Rs31.50 and Rs32.50 per kilogram and in many super market chains, if one buys on a "combo" basis, the consumer may get sugar at Rs31/kg.

On the whole the sugar industry - mills, farmers, cooperatives have been facing trouble since the last season. The sugar industry had huge arrears to pay to farmers, their cooperatives, transporters and the agricultural minister Sharad Pawar sought the government to give interest free loans to sugar mills to tide over the difficult situation.

While speaking at the 79th AGM of Indian Sugar Mills Association (ISMA), its chairman Srinivasan pleaded to the government to increase import duty on sugar to 40% from 15% and at the same time advised the government to create a strategic reserve of 2 million tonnes, use it in public distribution systems (PDS) and stabilise the market price beside setting a target of 4 million tonnes of raw sugar for export.

Apart from soft loans, an export subsidy of Rs3,333 per tonne was finally announced. Despite hiccups, so far, 1.45 million tonnes of sugar have been exported but the delay in getting the subsidy is making exporters reluctant to continue. In fact, there are unconfirmed reports that some exporters who have taken delivery have diverted the goods to the domestic market.

Meantime, global prices have also come down and reports on El Nino has been appearing in the press all over the world, because the rainfall pattern in South America has also been abnormal and weather bureaus are watching the situation in the Pacific carefully. The Indian Meteorological Department (IMD) is also of the opinion that this El Nino disturbance (intensity is not yet known) may affect our agricultural plans.

On the meagre subsidy, during recent WTO meet, Australia, Brazil and US raised objections and sought the Indian government to roll over its plan, as they felt, this subsidy (of Rs3,333 per tonne) would distort the global trade! Thankfully, it was clarified that this meagre subsidy was given to overcome some domestic problems faced by the industry and, as our own export was too small compared to the giants in the trade, it really would not make a dent in the international trade.

The sugar industry has not paid serious attention to the question of producing ethanol despite the mandatory 5% blending that the government has instituted. This has to progressively increase to 20% by 2017 when this move would bring in substantial saving in fuel imports. So far, only UP, Karnataka and a few depots in Maharashtra have taken this ethanol use seriously and have reached a 10% blending.

Realising the importance of import savings in this manner, the Inter-Ministerial Group (IMG) has now decided to revise the formula, which was used to arrive at the bench mark price of ethanol, which is currently Rs44 per litre. The revised formula is likely to be average refinery transfer price (RTP) for the previous financial year (or the cost of petrol to the oil marketing companies). This formula is likely to fetch an additional Re1 or Rs2 for the mills while the sugar industry expects this to be actually increased to Rs5 per litre! This again, is a decision that the new government has to take.

If the government is serious to introduce ethanol and reach the target of blending up to 20%, then it is imperative that directives are given to oil marketing companies (OMCs) to call for the tenders well in time and give priority to suppliers. As per the last report 65 crore litres of ethanol have been offered and only 31.55 crore litres have been lifted by them. This means OMCs are also not taking this matter seriously and a government directive to ensure increased acceptance of ethanol would make the project successful.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)