The Hindu Business Line : Decontrolling sugar

Apropos the article “The bitter facts about sugar” (Business Line, August 19), the reasons for the sugar price rise are not difficult to understand. In the case of foodgrains there are only two parties to the trade — farmers and consumers, with the government playing a catalyst’s role in procuring grain.

In sugar production three parties are involved — farmers growing the sugarcane, sugar mills that produce the sugar and consuming public. Here, also, the government plays a role in fixing a minimum support price which is payable to the farmer for the sugar-cane and the minimum quantity to be delivered by the sugar mills to the government at a levy price for distribution through the PDS.

The major difference here is that the subsidy element is borne by the sugar mills and not by Government. The open market prices of sugar are decided by the cost of producing the sugar and the total demand and supply for it. In this context, India, the world’s second largest sugar producer, produced a record 284 lakh tonnes (lt) of the sweetener in the 2006-07 season, which fell marginally to 264 lt in 2007-08, against a demand of 240 lt a year. As sugar prices did not move adequately in the past five years to compensate for increased cost of cultivation and production, the sugar mills were unable to pay the cost of sugarcane produced in time, resulting in the farmers switching to other competitive crops which give a better return. The result is that the production of sugar dwindled to 150lt against the demand of over 240lt in the year, leading to price increase as mandated by market forces.

Despite the price increase, sugar is a relatively minor item in our food mix and it makes sense to take it out of the control system, allowing the natural process of demand and supply to decide the price.

This will ensure limited price and production variations, and India could become the largest producer and an exporter of the commodity.

P. E. Muthu Mumbai