To paraphrase Balzac1, when the recommendations of policy makers are in harmony with the agenda of their political masters, then, fruitful progress is likely. The reform of the EU sugar regime over good many years which has made the sector globally competitive and invariably market driven is arguably a forceful reminder of this. The painful rationalization of the industry by practically half was the price the political masters were prepared to shoulder to jettison continued support to the sector. Sadly, though, in the global sugar sector, this remains an isolated example of effective policy making, endorsed by political masters that was proactive in its conception.
In response to rocketing oil prices in the ‘70s, the Brazilian government initiated the National Alcohol Programme ‘ProAlcool’ in 1975. The intention was to substitute gasoline with cane-based ethanol in automobiles. This reactive policy making was evident when it became evident that alternate energy sources will need to be tapped to meet rising energy needs of a growing economy – hydroelectrical power was insufficient. Only than attention was focused onto biomass power, but even then, during the early phase, millers used to complain of lack of incentivisation by the government. After the credit crunch in 2008, bankruptcy in the sugar/ethanol sector has been extensive. Some 80 factories have closed down. More may follow. The industry has been left at the mercy of market with little evidence that policy makers nor political masters care for their plight, save for the industry organizations like Unica.
In India, cyclical trend in sugar production with surplus one year followed by deficit, the other finally prompted an attempt to overhaul the existing sugar policy informed by market and production controls. In 2012, the committee, led by C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, favoured complete decontrol of the sugar industry. But the political masters were reluctant with wresting the production arm largely because of the debt they owe to their fairly influential political constituency – millions of cane growers. As Mala Lalvani2 pointed out, “economists have failed to recognise the political dimensions of policy prescriptions”. The close links between the sugar co-operatives with politics in general are palpable with the former enjoying economic regulation which serves its “private interests”. During the period 1952-1972 “21 chairmen of sugar co-operatives have held important positions in the Congress party”. With cane payment system skewed towards benefitting growers, the government is happy to subsidise millers to export surplus sugar, rather than make the industry globally competitive by taking the bold measures outlined by the Rangarajan committee.
China has been a major sugar importer for many years. To address declining supply, the government instituted a five-year plan (2011 to 2015) to target 85% self-sufficiency in sugar production. This would be supported by investment in R&D and price incentives for both farmers and processors. But this target has simply not been met amidst entrenched structural problems in the industry (impacting cane and beet production). The government turned a blind eye to smuggling of sugar when it suited them. In response to local producers protesting against smuggled sugar affecting their livelihood through lower prices in the domestic market, last June the government acted swiftly to crackdown on smuggling and hiked tariffs to up to 95% for out-of-quota imports. In their latest quarterly report, Rabobank says China will need to import 4 million to 5 million tonnes sugar in the coming year to satisfy local demand. Only time will tell whether all of these will be through the legal trade.
With few exceptions, the global sugar industry is simply not well served by thoughtful policy makers – proactive and focused in their ambition – nor their masters who are invariably swayed by their political agenda rather than the greater good of the sector.
- Honore de Balzac. His original quote was “when the sympathies of the heart and the mind are in harmony with each other, they go far”.
- M. Lalvani (2009) Sugar co-operatives in Maharashtra: A political economy perspective, Int Sugar Journal, 111 (1328) :496-518