Sugar Industry woes…

In 1991 Prime Minister Narasimha Rao brought liberalisation to a practical level. Departing from the Nehru-Indira’s uneducated guesses on economics, what Mr. Rao did was path breaking.

Sadly Sonia is back in power -(and BJP’s stint did not matter) and we are back to our so called social ways. Take the case of the sugar industry.

One end of the industry are the farmers (who want higher prices for their cane) and the other end is the ‘poor’ consumer (or that is what the government will make us believe). The government subsidizes power, fertilizers, and water needed for growing sugarcane. However sugar has to be processed – so the farmer needs a factory. Sugar factories are – privately owned (UP, TN, Karnataka and to a small extent Maharashtra), government owned, or in the co-operative sector (Maharashtra predominantly).

Here comes the crunch. The government decides on the cane price. This is a politically decided price. Completely political in all states – and our great future Prime Minister Rahul Gandhi has an important say because he wants Congress to win back some seats in UP. Currently the government says it should be Rs. 145 a quintal – but Mayawati  has decided that the industry should pay another Rs. 100 per quintal.

The woes of the industry do not end here, it just began! Now the government which thinks so much for farmers, wants the Jute farmer protected. So the sugar can only be packed in jute bags. The wastage and contamination of sugar because of jute is to be seen to be believed! Why is this bad? Simple the sugar consumed  by the bulk users is about 70% of the produce!

Most Fmcg, soft drink manufacturers would actually prefer paper cartons to jute bags. This surely puts a cost, is more expensive to handle, it contaminates……etc. etc.

So what does the government do? It has a huge, huge subsidy bill and wondering what to do.

What about petrol? diesel?

Well once upon a time it choose who should get the dealership. At that point in time you could make money by adulterating the petrol. Now the margins are so bad that agencies lose money. So political interference in dealer appointments is gone down.

The subsidy list is stunning…and we keep wondering why is the US $ at Rs. 60…at least let us stop wondering!

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4 Responses to “Sugar Industry woes…”

  1. Sir, you’ve missed the frequent flip-flops in the export / import policy of sugar and also the millstone of free / levy sale quotas.

  2. Srinivas Muthadi on January 23rd, 2012 at 3:28 pm

    The answers are there in “planned Chaos” – Ludwig von Mises.

  3. Subra sir
    Please pardon my ignorance (doctors ARE ignorant)
    how is subsidy related to poor performance of rupee. If possible please explain in an easy language

    aspiring for more financial classes
    dr kishan

  4. Subra,

    As always – a good but scary article from you! 🙂 You forgot to thank thoughtlessly planned MNREGA. My aunt’s (really this is true) crops are literally rotting in the fiels due to lack of labour, in Karnataka!

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