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Opinion | Why sugar exports to China can be a turning point for sector.

Date: 13-11-2018
Subject: Opinion | Why sugar exports to China can be a turning point for sector
The government’s new sweetener for the sugar sector could well be a turning point for the industry. The government-to-government level trade deal to export sugar to China will be a game changer for the beleaguered sector. The government projects sugar exports from India to China touching 2 million tonne per annum (mtpa) from next year. The first baby step towards that goal has been taken with the signing of a contract for exporting 15,000 tonne of raw sugar by Indian Sugar Mills Association (ISMA) and COFCO, a Chinese government-run company.

India’s sugar exports have over the years been company-specific, with help from ISMA. The government was mostly missing in this export push initiative. Take the case of Bangladesh, a country surrounded by India from three sides. Bangladesh needs 2.5-3 mtpa of raw sugar, but rather than purchasing it from India it goes halfway around the world to Brazil to buy it.

China's sugar production is around 10.5 mtpa, while it consumes 15 mtpa. The country issues a quota, twice a year, to traders to import sugar from the world market, but here too the Indian sugar industry has not done much to fill this requirement.

Thankfully, the government and the industry are now taking a holistic view on sugar exports. Sanjay Khatal, Managing Director, Maharashtra State Co-operative Sugar Factories Federation, has urged Indian exporters not to see short-term gains but to export sugar as much as possible.

India has set a target of exporting 5 mtpa of sugar for which the government has offered a subsidy of Rs 8.5 a kg.

For India, a long-term solution to the sugar problem is much needed. Sugarcane as a crop offers one of the best yields for a farmer and that's why a number of cultivators prefer growing this crop. With improving irrigation, more farmers are also taking to sugarcane production.

Sugar is one of the few industries that is still controlled by the government. It is in the interest of the government of the day to keep the sector happy. In the present scenario, the government is trying to address the problem of plenty by announcing a number of schemes. From incentives to mills to use sugarcane to produce ethanol to increase the usage of ethanol in vehicles, the government is looking for alternative uses of sugarcane.

This year, a adequate monsoon and higher sugar prices resulted in more farmers taking to growing sugarcane with a vengeance, resulting in a bumper crop. In earlier years, sugarcane farmers and mills were not in the best of health on account of poor rains and low prices, resulting in non-payment of dues by mills to farmers. This year’s adequate monsoon brought with it the hope of clearing all dues.

While the country normally produces around 26 mtpa of sugar, this year the initial estimate was around 35-35.5 mtpa. This has now been revised sharply downward to 31.5 mtpa on account of waterlogging in fields in Uttar Pradesh and white grub infestation in the standing crop in Maharashtra. As compared to production, India’s sugar consumption is around 26-27 mtpa.

With a better variety of sugarcane crop, improved irrigation and sugarcane prices, the government expects production to remain high going forward. In order to balance the supply-demand scenario in the country and keep the sugarcane farmers happy, the government needs to create a market for India’s sugar. The only way to do so is to look for long-term tie-ups globally.

In its export to China, India has found a solution to another problem – the trade deficit. India's export to China in 2017-18 was $33 billion, while imports stood at $76.2 billion. If India manages to export sugar to China, at the current market price and Rs 72 to the dollar, exports can touch around $8 billion. Though it does not tilt the balance, the gap narrows and addresses multiple issues.

Source: moneycontrol.com

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