Not Just Sweet Talk

It was an unusual meeting. One between India’s sugar barons and mandarins of the commerce ministry. And one in which, hold your breath, the babus actually advocated a hands-off export policy. The bureaucrats told business that as long as New Delhi and Islamabad were kept away from sugar, cross-border trade in the commodity would be sweet.

Is this the new buzzword in sugar trade between the neighbours? Perhaps yes. The ministry’s notification on exports - which comes two months before the harvesting season - will allow industry to whittle down 10 lakh tonnes of sugar stocks in a month.

Pakistan has recently allowed import of over 40,000 tonnes of sugar from India and said there will be more orders this year. Though the Musharraf regime’s move was motivated by an acute sugar shortage, the first-ever bilateral trade contact after Kargil is being seen as a major breakthrough in easing diplomatic tension between the two neighbours. Already two Pakistani firms have inked deals with Indian exporters.

Pakistan’s agriculture minister Shafqat Ali Jamote has said the scheme is open for a year. "Pakistan’s tender to buy 100,000 tonnes of sugar to meet local needs will bring domestic prices down. It could be imported from any country, including India. There’s no restriction on buying white refined or white crystal sugar from India if a good price is offered. We’ll buy sugar from wherever it’s the cheapest for us. It may be from India, that’s no problem," says Jamote. This even though India will sell sugar at $300 per tonne - a tad higher than global rates.

However, Pakistan’s commerce ministry officials maintain the higher price would make no difference because it would mean little by way of transport costs. Sources in the government say the Trading Corporation of Pakistan, by setting new dates for deliveries, has technically ousted all sugar suppliers from the field, except India.

A bumper crop has helped Indian produce touch the 18-million-tonne figure this year, surpassing the initial estimate of 16 million tonnes and pushing Brazil to the second place on production parameters. But the steep hike in yield this year, along with previous year’s carryover stock of 10 lakh tonnes, have only hit the domestic industry.

"The government’s decision has come as a boon. We have a huge market next door and need to develop it systematically," Indian Sugar Mills Association (isma) director-general S.L. Jain told Outlook. Many see the government’s decision as a desperate move to reduce costs and admit the current global price of $255 per tonne won’t even help exporters realise production costs.

Expectedly, exporters want to hold back some of the stock. Representatives of the Indian Sugar and General Industry Export-Import Corporation (isgieic), the global trading JV of isma, and the National Federation of Cooperative Sugar Factories Ltd (nfcsfl) told the ministry they wouldn’t want to export the entire 10 lakh tonnes of sugar in one go as global prices could firm up.

Jain says besides Pakistan, millers are also looking at alternative export targets. "Pakistan is easy because of quick accessibility. But we are also exploring new markets," he says. Industry watchers feel that though Pakistan and West Asia top the priority list of sugar exporters, efforts are on to penetrate the market in Australia which is sold out of sugar from its current poor crop. And not just exports, a senior government official says the ministry will soon allow futures trading in sugar and permit associations like isma and nfcsfl to set up futures exchanges.

That spells a bonanza for an industry reeling under the ‘diseconomies’ of scale. The current sugar situation - high yields, huge stocks and stable prices - presents an excellent opportunity to scrap the release mechanism which continues to stifle the industry. So, for sugar barons, it’s now or never.