India to de-control sugar industry soon

By Abhishek Subrahmanya: Subscribe to Abhishek's RSS feed

July 14, 2010 12:40 PM EDT

India's Food and Agriculture minister, Sharad Pawar, on Tuesday gave clues on decontrolling the sugar sector from the government clutches.

The minister said, the proposal to ease the control on the industry will be ready in next 10 days, and will be moved to Cabinet in three months.

As of now, the Agriculture ministry allocates the monthly quotas to the mills, according to which the mills sell their produce in the open market, as well as through ration shops.

The minister also said the monthly levy quota of 20 percent, under which sugar given to the government for public distribution system (PDS) could be a possible area where decontrol will take place. The government might also do away with decisions on import and export and specifying the distance between two mills.

However, Pawar stated that the ministry will still control the minimum price that mills pay to farmers for purchasing sugarcane. "Based on the assessment of crop conditions in September, we will take a final decision and recommend to the Cabinet. Till then, we will not recommend."

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The country's sugar production in the 2010-11 crop year (October-September) is expected to be more than the annual requirement of 23 million tonnes.

The minister also said that the next crop year would be a good one for both consumers and farmers, and would give him room to take some "drastic decisions" for the sugar sector.

Meanwhile, The Federation of Cooperative Sugar Mills in Maharashtra, representing 170-odd units, which was pushing for the decontrol, has welcomed the reported move of the union government to decontrol the sector. "The time to decontrol is right, with the country expected to have bumper sugar crop for the next three years. The government, however, should implement decontrol after taking the industry into confidence," said FBNews.com quoting an industry source.

Many in the industry believe that the existing controls distort prices by causing seasonal shortages and stoke inflation. And without the control, the prices will be directed by the market forces.

India, the world's second-biggest sugar producer and biggest consumer, will head back to being a sugar surplus country after two years of deficits.

Indian sugar mills are in better position to take advantage of lower global sugar stocks, which have run to their lowest levels in two decades. Even Thailand, second largest exporter, is buying back sugar to meet domestic demand.

Brazil, the largest producer, has a good cane crop prospect, but faces shipping problem, as one of the major port, which is near the main sugar state Sao Paulo, has been forced to halt operations by state environment regulator Ibama for operating without a license.

Raw sugar futures in New York ended marginally higher as the market recovered from losses early in the session in mostly technical activity. The benchmark October contract finished 7 points higher at 17.17 cents/lb, moving between 16.80 and 17.26 cents. March added 13 points to 17.68 cents/lb, while the back months finished between 20 and 35 points higher.

This article is copyrighted by International Business Times, the business news leader