Welcome to India, where “electoral politics plays havoc” on the nation’s sugar industry.
A Business-Standard report over the weekend outlined just how messed up things are in the world’s #2 sugar producing nation, thanks in no small part to government interference in the market. Reporters Sanjeeb Mukherjee & Virendra Singh Rawat wrote on October 18th…
“The festival season is when the sugar mills work overtime. Indians buy copious amounts of sweets for friends, family and associates. All this translates into huge orders for the sugar barons of Uttar Pradesh.
“The state is the country’s second-largest producer of the sweetener and has the highest number of private sugar mills. This year, there is perceptible gloom among these mills. They are mired in losses because the state has mandated such a high price for sugarcane that running the mills has become uneconomical. The mills want a new formula for sugarcane price that is linked to the prevalent sugar price.
“But the Samajwadi Party government in Lucknow is not convinced – it wants the interests of all stakeholders like farmers to be protected. It has asked mills to start production in mid-November or face the consequences.”
So the government in India forces sugar mills to pay sugar farmers more for their sugar cane than market price. As such, the mills lose money processing the cane into refined sugar. So the mills threatened to not process this year’s cane crop. In return the government threatened the mills with “consequences.”
So much for the free market.
But it’s worse. Now the nation’s Supreme Court has gotten itself involved, which “has set alarm bells ringing” over at India’s two major banks and puts lending to the beleaguered mills at risk.
And making the bad situation worse, instead of getting its nose out of the sugar industry’s business, the government is now trying to fix the problems it created in fixing the price of sugar in the first place by extending “some tax concessions and rebates for the mills.”
“The basic problem with the sugar crisis in Uttar Pradesh is of excessive political interference,” an unnamed “central government official” said to the reporters.
And this is the global market some in Congress want American sugar farmers to compete in with no protections whatsoever?
Talk about throwing to the wolves.