Sugar decontrol: Will it happen this time?

Last Updated : 06 July 2011 at 16:20 IST

“We are bleeding...not ticking....”said Vijay.S.Banka, whole time director of Dwarikesh Sugar Industries Limited.

He was responding to the question: ‘What keeps sugar mills ticking in the era of license raj sort of controls?’

“The industry’s CAGR (Compound Annual Growth Rate) is the lowest among all sectors...” he said.” So, it would be wrong to say that we are ticking. We are surviving...”

Concurs S.K.Agarwal, Company Secretary, Balrampur Chini.

“Sometimes we are a loss making industry...since we (Balrampur Chini) have diversified into power and distillery business, we are able to sustain.” He added.

Sugar in India is a sour topic! At least for the mills and farmers...

The commodity is the most controlled in India and is a relic of the license raj. The release mechanism and levy obligation is exercised by the government to control sugar. In the open market, sugar is being sold subject to the directives from the Directorate of sugar in the Union govt.

Release orders are issued every month and the mills are given a sales quota. Mills cannot sell above this quota. “So, we cannot leverage the markets fully when sugar prices are up...” laments an industry official.

Worse, the mills get a penalty if they fail to sell the quota within the stipulated time.

Another aspect is that of levy obligation.

The mills have to sell 10% of their output to the government at a price quoted below the market price. (Through the PDS, this sugar is supplied to families below the poverty line.)

Of course, given this unsustainable scenario, a delegation of industry players led by Maharashtra Chief Minister Ashok Chavan met the Prime Minister in this regard, recently. The delegation also demanded additional export quota for sugar.

The glimmer of hope came on July 4 when agriculture minister Sharad Pawar indicated that some pragmatic decision will soon be arrived at with regard to Sugar decontrol and all issues in this industry will be addressed in-depth.

Back in 1971-72, and in 1978-79, attempts to decontrol the industry was made only to be retracted later on.

So, will the government allow for the decontrol?

“Sugar is an essential commodity...and given its political aspects very difficult to predict...I don’t want to speculate...” said Pritam Kumar Patnaik of Kotak Commodities.

“It is a contentious issue...”he added. “Prices of sugar will not rise in the short-term, even if it gets de-controlled. But with export commitments coming up, in the long-term, the prices may rise.” he said.

“As a commodity player, I don’t see any negatives in allowing sugar decontrolling...” he added.

“The act of decontrol can bring about parity in national and international prices”, said C.P Krishnan, Head, Commodities, Geojit BNP Paribas.

“Such a move is always welcome...he continued.

Currently, some sugar mills are finding it difficult to raise capital trough bank credits. The Public Sector Banks are an exception in this regard. “But private banks are only fair-weather friends...” said another industry participant.

Sometimes higher sugar cane prices also plague the industry and lower cane prices often deter farmers from engaging in cultivating the same.

“In Brazil, cane prices are linked to price realisation...such a practise can be followed in India too...” said S.K. Agarwal.

“De-controlling of sugar will develop a free-market and would bring in competition. This would ultimately benefit the consumers...” Agarwal added.

In case of sugar, the State governments also have a say. It is the state government that decides on the State Advised Price for sugar.

“A concerted effort on the part of State and Centre is required to effectively implement the decontrol...” said an industry player who did not want to be named.

As published in: http://www.commodityonline.com/news/Sugar-decontrol-Will-it-happen-this-time-40563-3-1.html