Ministry moots sugar decontrol, govt may stop buying levy stock

NEW DELHI: After making a serious pitch before global investors this year, it is time for the domestic sugar industry to prove it can stand on its feet. The food ministry is learnt to be keen on decontrol of the sugar industry, sources close to the minister said. If the proposal is accepted by the government, there will be no control on the supply and price of sugar in the open market. Moreover, mills will not have to supply levy sugar for ration shops.

According to the food ministry proposal, in the first phase, the government would stop buying 10 out of every 100 bags of sugar produced by each mill as levy sugar. This will mean that the complete output of the industry will be sold in the open market to consumers.

In the second phase, the government would do away with the practice of fixing the amount of sugar each mill can sell every month in the open market. By regulating the amount of sugar available, the directorate of sugar directly controls the price of sugar in the country.

Once the release mechanism is removed, the mills will have to take their own business decision on how much quantity of sugar to sell — just like all other manufacturing sectors.

The food ministry is learnt to have suggested that the proposal should be first examined by an empowered group of ministers and then put before Cabinet.

Though it is interesting to note that food minister Sharad Pawar may be in favour of decontrolling sugar, the proposal is certain to fall foul of the industry. This is because there has been a bumper harvest this year and next year is expected to be bearish as well.

With plenty of sugar available and a free-for-all in sales, decontrol may well become a bloodbath for the less-efficient players in the industry.

The minister has already made an attempt to prop up sugar prices by announcing the creation of a buffer stock. This means the mills will be holding a certain quantity of sugar, whose carrying cost will be paid for by the government. That takes some pressure of their balance-sheets.

Meanwhile, why are sugar prices falling so rapidly? Some industry players say it is mainly due to futures exchanges and the presence of investment bankers in the sector.

“A bumper harvest is not new. The difference this year is that prices are falling in January-February itself rather than in May. We believe this is because through the futures contracts, people can see today what the market sentiment will be six months down the line. That brings in the bearish sentiment faster.

Moreover, a large number of sectoral analysts and investment bankers are now seriously tracking the sector. They are able to discern trends and disseminate information much faster than before. So, there is little room for any fog or confusion among investors. That is a good thing, though painful for mills themselves,’’ said a senior trader in a leading mill here.