The Exports Dilemma

(column by Karan Mehrishi)

Though the quantitative ceilings on sugar exports were removed from the otherwise heavily guarded and controlled sector in the year 2001 by the government, it is regularly accused by players of not allowing the same in reality; as explained by S. L. Jain, Director General of Indian Sugar Manufacturers Association (ISMA), “The government has not done enough on its part; Krishi Bhavan still restricts exports to raw sugar importing companies.” That’s a pointed fl aw, especially when the government is preparing to allow the sugar industry to become a net exporter, with an export target of 1.5 million tonnes being set for SY-07.

Creditably, the Sugar Development Act 1982 has been amended to provide cheap loans for sugar development. But for a country which is to produce an estimated 22 million tonnes of sugar in SY-07, where total sugarcane production is valued at Rs.240 billion per year, the biggest problem Indian farmers & domestic processing companies were facing was that imported sugar was much cheaper than domestically produced sugar. EU is a case in point. EU is one of the largest exporters of sugar with a heft y 14% share in world sugar trade. In fact, one of India’s disagreements during the recent moribund WTO trade talks (refer Policy lead in this issue) was with EU’s continuing subsidies to its farmers that gave them undue advantage. But now, with an EU guarantee that its subsidies will be dropped by 36% over a period of four years, Indian farmers have a huge potential in the new level playing field.

The Honeyed Path to Progress

For the past few months, the industry is witnessing a new concept of branded sugar, and this is surely an affirmative action for the players. Brands like Shagun and Mawana Sugar are already available and are in high demand in the metros; though industry bigwigs like S. L. Jain do claim, “Simple branding will certainly not escalate the sales.” But, perhaps, the future of Indian sugar sector rests far away from metros, to within the policy corridors.

A country that was a net importer of sugar last year (Indian Sugar Exim Corporation estimates), is still strictly dependent on monsoons for meeting its sugar demand, and this creates massively unstable price demand fluctuations, due to farmers’ tendencies to produce more than required in good times. According to Nayak, “When production of sugar increases, demand supply disequilibrium reduces prices, thereby dissuading farmers from sugarcane production,... which in turn, reduces the supply of sugarcane, the implications of which... again increases prices & subsequently increasing supply.” The sad part is, these fl uctuations are becoming increasingly unstable, making redundant the government’s diktat on the Statutory Minimum Price that sugarcane buyers have to necessarily pay farmers. At another level, these fluctuations are discouraging growth of parallel industries like ethanol. In fact, a spokesperson of a large western UP firm (name withheld on request) divulged to B&E, “We do not want to increase the production share of molasses... as 1 quintal of sugarcane yields Rs.180 for 10 kg of sugar; and we get only Rs.10 for 5 kg of molasses obtained.”

Indubitably, only once the government focuses on clarifying its exports policy, ensuring that the SMP levels are raised to reasonable support levels, and encouraging a rational division between sugarcane and complementary goods production, can India’s sugar industry really become globally notice worthy!

The Rio De Janeiro Samba

Apart from being a part of the prestigious BRICS clan, there is another aspect to Brazil’s fame – its sugar industry. The country produces a ponderous 20% of the world’s sugar and is the number one sugar manufacturer leading by a huge margin. Brazilian sugar dominates world sugar prices through its demand and supply statistics by pumping nearly 17.3 MMT into the world sugar market every year. Despite the fact that the country has such a massive sugar industry, Brazil is slowly and surely transforming itself into a major ethanol manufacturing destination, and will be exporting an estimated 10 billion litres by the end of the decade. Now, almost 50% of sugarcane is utilised directly for molasses production (used for ethanol). This ethanol movement, in fact, has transformed the country’s automobile industry; about 80% of new cars sold in the country are ethanol capable today, making it a country with the highest penetration of flexi fuel cars. With 70 new plants coming up by 2010, Brazil has more than its carnivals to be proud of...

(End of Karan Mehrishi column)

As Central & Eastern European nations rapidly join the global economy, the time is now right for Indian businesses to explore Poland, the eastern gateway to Europe...

(column by Siddharth Nambiar)

The squat grey apartment buildings that line Warsaw’s streets shield a view of the city as you drive though from the airport. This is only till the point you motor over the river Vistula and downtown Warsaw’s skyline grabs you – that is when you behold the bewildering spectacle of glass & steel skyscrapers competing with ancient cathedrals to reach for the pristine blue horizon...

You get used to the stark contrasts in Poland. Nuns and bankers, each draped in the dark robes and navy suits of their Christian and capitalist beliefs brush shoulders in downtown Warsaw as they go about doing the bidding of their respective gods. The population of Poland is 90% Roman Catholic, the last Pope was Polish, and the country’s greatest apprehension and hope is its 2004 entry into the EU, which should mean pleasant tidings in future.

When you emerge from the picture perfect medieval streets of central Krakow onto the largest market square in Eastern Europe, the clatter of horsedrawn carriages and faint melodies of roving musicians throws you back to another century. There is a church on every block; evenly matched in number by the many chic bars housed in ancient medieval cellars, which vie with each other for the tourist’s attention. Just like India, Poland is truly a country in transition.

The World’s Battlefield

Poland, as we know it today, was first brought together under Mieszko in the 10th century. Poland went through a Golden Age in the 16th century under the Jagiellon dynasty, and was one of the most powerful empires in Europe for three centuries. However, its fl at terrain and lack of natural fortifications made it a battle-ridden state throughout history. In 1791, Poland adopted a constitution – only the second in the world to do so. But by the end of the 18th century, internal fragmentation and foreign influences saw the country carved up between Prussia (Modern Germany) and Russia.

After World War I, Poland regained its independence, only to be attacked by Nazi Germany and the Soviet Union, as a result of the secret Molotov-Ribbentrop Pact. That attack marked the beginning of World War II, which saw Poland lose over 20% of its pre-war population and left deep scars. The infamous Nazi death camp of Auschwitz and many others like it were located here. Poland became a communist country and a Soviet satellite state after the war – a period of 45 years punctuated by uprisings and protests. The Archbishop of Krakow became Pope John Paul II, the head of the Roman Catholic Church in 1978. After perestroika in the late 1980s, Poland adopted a market based economy and the economic shock therapy propounded by economist Jefferey Sachs (columnist for B&E) transformed Poland into one of the most robust economies in Central Europe.

To The Markets We Belong

A PPP GDP of $514 billion for the Polish population of 38 million means a respectable $13,300 in PPP per-capita income. GDP growth rate was 3.2% last year and is expected to exceed 4.5% this year, according to OECD. Poland joined the NATO in 1999 and the EU in 2004, which is expected to infuse $23 billion in funds. Poland has already started reaping the rewards of EU membership with exports leaping from $61 billion in 2003 to $95 billion in 2005, higher food prices & EU farming subsidies. Polish currency Zloty is expected to be phased out by 2010.

Poles are, by and large, disillusioned with their political leaders. The President, Lech Kaczynski, appointed his twin brother & co-star (from their days as child actors) Jaroslaw Kazynski as the Prime Minister in July this year (see Politics column in this issue of B&E). Shaky coalitions are a norm. The outgoing ruling party garnered just 12% of populist votes in 2005. But the Kaczynskis are a powerful force, and the onus is on them to continue reforms.

Systemic issues are impeding growth. A reform of healthcare and education has run out of steam for lack of funds. Underdeveloped and dilapidated infrastructure is slowing down Poland’s ability to create jobs. The nation has the highest unemployment rate in the EU, about 18%, with youth unemployment at 40%. Due to this, over a million Poles are estimated to be working abroad. The need of the hour is to dramatically support private investment and FDI. Poland’s inbound FDI was around $8.9 billion in 2005 (National Bank of Poland figures); an alarming drop of 31% over 2004. The future holds much hope, though. Taxes and paperwork involved therein, (a major complaint by investors), are proceeding quickly towards reform. Poland’s location as the eastern-most member of the EU makes it an ideal entry point to this vast market. A massive opportunity is the privatisation process, undertaken for sorely needed funds. Although major sectors like petrochemicals, steel & railways are more or less off -limits, the state is ready to divest its stakes in many companies. Off shoring & nearshoring opportunities are expected to sprout quickly, as they did in Ireland. Real estate is the real killer opportunity.

Knight Frank has reported several years of record breaking growth, especially in retail. Tourism seems poised for take off. Be it the picture perfect architecture of old town Gdansk, the Krakow market square or Auschwitz, a grim reminder of the World War II, there is a lot on offer. But the organised hospitality sector will be unable to meet the rising demand without further investment.

Capital is the major issue. Jacek Pawlowska, a veteran consultant, emphasizes the opportunities for banks, “Polish society is going through the process of building a financial backbone – opportunities for acquiring existing banks and founding new ones are immense.”

In The Land of The Maharaja

The Polish Ministry of the Economy says trade with India accounts for 0.25% Poland’s foreign trade (value). India is Poland’s 46th largest trading partner in terms of exports, and 36th in imports. According to Janusz Kipigroch, First Secretary (Head of Economic Section), Embassy of Poland in India, “Poland is looking towards India as a preferential country (though he admits that many Poles still think India is a land of spices & maharajas!). After China, India will be the next big partner in Asia.” Data by the Centre for Socio-economic Information shows that Poland’s trade with India reached $512 million in January-November 2005, a growth of 40%, with Polish exports at $177.1 million and imports at $334.8 million. Polish exports were dominated by armaments, machines & equipment and metallurgical products. The main imports by Poland included textiles, chemicals and metallurgical products.

The Ministry of Economy has set up SEZs which are attracting foreign investments from across the world; mindful that this nation has some of the cheapest costs in Europe. Videocon and Escorts have both invested in manufacturing facilities. In 2006, Indian investments in IT will create 2500 jobs. TCS is already planning an outsourcing centre in Poland. On a recent visit to Warsaw, Minister for Commerce & Industry Kamal Nath said, “Indian industry should capitalise on opportunities in IT, pharmaceutical, coal and bio-tech.” As the economy gathers momentum, it’s looking more and more like a gravy train. Hop on board while you can.

Buzzing Past

One major feature of Polish roads is that they showcase an array of cars. And why not? Automobile manufacturing is the star sector of Poland. The low cost high quality characteristic of the Polish auto sector provides enough cars not only for internal consumption, but also for exports. Automobiles and related parts accounted for about 13% of the total Polish exports for the first nine months of 2005. Almost all global auto majors including Toyota, Isuzu, Volkswagen, MAN, Volvo, General Motors, Fiat and Opel are having their manufacturing setups in the country. According to the latest figures by the Department of Analysis & Forecasting, Warsaw, the motor vehicle manufacturing industry saw a pretty healthy 20.5% growth for the quarter ending March 2006.

(End of Siddharth Nambiar column)