Pawar gives presentation on sugar decontrol to PM (03-Sep-2010)
In a move that has boosted the prospects of the sugar industry, Union Farm and Agricultural Minister Sharad Pawar has made a formal presentation to the Prime Minister Manmohan Singh for decontrol of the sector. This marks the start of a formal process to ease the control on this traditionally heavily regulated sector following the farm minister airing his informal opinion in this regard a month ago.
While the government had touched upon the matter of decontrolling sugar many times earlier as well, the expectations are higher this time around as the present government is perceived as reform friendly and has already taken steps to partially deregulate the petroleum sector. The sugar industry also believes that this is perhaps its best chance in decades to convince government to deregulate this business, at least partially.
Also, with good prospects of production in the coming season, it would be easy for the government to deregulate the sector at this point. India’s sugar output was much lower than average in last two years, forcing the country to import large amounts of the sweetener and resulting in sharp hike in prices in both Indian and global markets. However, this year, riding on a sharp supply response to higher prices seen last year and a good monsoon, production is expected to be higher than demand, and there would over a million tonne of export surplus.
Although the government has relaxed some of the measures that were imposed last year after sugar prices surged sharply, the sector continue to attract a number of restrictions. Government still fixes the minimum sugarcane prices, and issues a monthly release quota for each mill. Also, mills have to sell 20% of their output at a below market price to the government for its public distribution system (PDS).
Further, if a mill fails to sell in the open market the amount of sugar allocated to it for a specific month, the remaining amount of the sweetener is automatically converted into the levy sugar, The mills are regularly audited to ensure they do not under-report production or under-sell the allocate quota to them.
As per the decontrol proposals that were presented by the farm minister to the PM, the government would continue to fix the minimum price of sugarcane to ensure farmers get a reasonable remuneration. However, he advocated for scrapping the monthly release quota for the mills as well as the levy practice that is forcing the mills to sell sugar to the government at below market prices for the PDS. He however also added that a central regulatory committee would be constituted to ensure that millers follow transparent practices throughout the country.
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