Sugaronline Editorial - Tinkering fools By Meghan Sapp

Published: 01/06/2017, 2:08:00 PM

Already 2017 has demonstrated that governments don't have the ability to think before they tinker.



Already 2017 has demonstrated that governments don't have the ability to think before they tinker.

 


If a crystal ball really worked, no one would play the horses or take out options on sugar futures. As hard as analysts try their best to figure out how the market is going to go, what production is going to be and what prices will be, it’s all just a very educated guess. Usually they go in the right direction, except when they don’t.

Weather is what often gets in the way, making a crop shrivel or thrive unexpectedly and there isn’t anything anyone can do about it. But it’ll have its way with the market, that’s for sure, and prices will swing as a result. Then there are those pesky governments who try to compensate for nature or compensate for another government’s policies or compensate for the market trying to sort itself out.

And that’s where things really get messy, because governments aren’t altruistic and they certainly aren’t all knowing. Oftentimes they’re not even competent, many times are corrupt or manipulated by industry, or even all three. So no wonder cane farmers and beet farmers and refiners and ethanol producers don’t know which way is up or sideways.

If the first week of 2017 is anything to go by, this year won’t be any different from previous ones, at least when it comes to government tinkering. From minor formalities like shifting dates for tender delivery in Egypt and setting new standards for packaging and labelling in Jamaica to more major moves like Brazil reinstating PIS/Cofins taxes on hydrous ethanol that will directly impact production to Pakistan approving 250,000 metric tonnes of exports that forced local sugar prices higher, it’s just a start of what is going to be a tumultuous year.

In India, unstable policy is seen as the key risk factor for the industry’s failure or success this year but unfortunately the system is built so that the government can’t leave well enough alone, because there is no “well enough.” Governments raise sugarcane prices so mills need higher market prices or billions of dollars of soft loans to keep the doors open, not to mention supports for ethanol production and trade to diversify incomes and compensate for lower-than-profitable sugar prices.

Australia’s on-going row between growers, millers and exporters has gone on so long that it’s impacting the agricultural economy and will only spread to the wider national economy if it doesn’t get sorted. When growers can’t fight the big mills anymore, they seek government intervention, but government intervention makes mills threaten to head for the door. It’s a delicate balance that needs to be struck, this year, and a case of the government needing to break the stalemate in a way that everyone wins and everyone loses but equally.

Good luck with that.

With the deficit eeking into the physical market for a brief appearance early this year before swinging back out to the dreaded global surplus, governments are going to have to learn to be a bit more patient and wait things out before tinkering. But recovery is a long process that begins with self-knowledge and acceptance, neither of which is likely to happen this year or the next.

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