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Economy Dec 25, 2012

Sugar industry braces for decontrol in 2013

New Delhi: Sugar tasted sweeter this year for the Rs 80,000 crore industry which saw bumper production, higher exports and signs of freedom from government control, but consumers had to pay Rs 10 per kg more for the commodity through the year.

High retail prices helped sugar industry recover costs and clear almost entire cane payments to farmers-worth Rs 52,000 crore in 2011-12 marketing year (October-September). The year started on a good note with the Prime Minister appointing an expert panel in January to examine the decontrol of the sugar sector, ending on a hope that 2013 could be a landmark year with government freeing the only industry left under its control.

The government has hinted that it would eventually phase out sugar quota allocation for open market sale. Reuters

Sugar industry, on which five crore cane farmers depend, is controlled right from fixing the cane price to marketing of the sweetener.

Much to the industry's liking, the expert panel headed by PMEAC Chairman C Rangarajan submitted a positive report on the decontrol of sugar sector in October with recommendation of immediate removal of two major controls-regulated release system and levy sugar obligation.

Through the release mechanism, the Centre fixes the sugar quota that can be sold in the open market and under the levy system, it asks mills to contribute 10 percent of output to run the ration shops costing industry Rs 3,000 crore a year.

Even before the report was submitted, the government had started to loosen its grip on the sector by relaxing the regulated release mechanism in April from monthly basis to quarterly, and then later to a four-monthly exercise. The move has helped mills manage inventories and cash-flows better.

The government has hinted that it would eventually phase out sugar quota allocation for open market sale. It has also started the consultation process with states on removing levy obligations and sugarcane pricing.

At the fag end of the year, Food Minister K V Thomas assured the industry leaders that Rangarajan report would not meet the fate of earlier reports. "The decision on some of the recommendations will be taken in the next 4-5 months. It will take some time, we cannot take decision in haste. We are taking views of the state governments," Food Secretary Sudhir Kumar said.

Way back in 1971-72 and 1978-79, the government had made attempts on decontrol. Agriculture Minister Sharad Pawar also tried for the decontrol in 2010 when he was holding the charge of Food Minister, but without any result.

Besides some action on the decontrol front, the year also witnessed surplus sugar production, prompting the government to initially allow exports of 2 million tonnes and then freeing shipments altogether in May. Sugar output rose to 26.34 million tonne in the 2011-12 marketing year (October-September), as against 24.4 million tonne in the previous year. Exports from India, the world's second largest producer but biggest consumer, stood at 3.4 million tonne, as against 2.6 million tonne in this period.

The government provided another major boost to the sugar industry by allowing price of ethanol (a bye-product of sugarcane) to be decided by the market forces. In November, the Cabinet Committee on Economic Affairs (CCEA) approved that procurement price of ethanol would be determined by oil marketing companies and ethanol suppliers. It had fixed an ad-hoc price of Rs 27 per litre in 2010. The CCEA's direction to oil firms on the implementation of 5 per cent mandatory ethanol blending with petrol against the current level of 2 per cent would be beneficial for the sugar mills with expected rise in demand for ethanol.

The year turned out to be fruitful for sugarcane farmers as well; they got better price from the industry and cane payment arrears were also not very high at Rs 444 crore for 2011-12 marketing year that ended in September.

Higher cane price pushed up retail rates by about Rs 10 in last one year to Rs 44-45 per kg, adding to burden on consumers who are already facing the burnt of high inflation. Branded, packed sugar is being sold at about Rs 50 a kilo. However, there was not much hue and cry this year on sugar price rise as had happened in 2009-10, when rates touched Rs 50 per kg. The reason being gradual increase in the prices and not sudden spurt in rates.

The price of the sweetener could go up further next year with the Centre increasing cane rates to Rs 170/quintal for 2012-13, from Rs 145 in the previous year. Moreover, Uttar Pradesh, which declares its own cane price, has increased rates to Rs 280-290/quintal, from Rs 240-250.

Not only that, sugar production is expected to decline to 23.5 million tonne in 2012-13 although output will remain higher than annual domestic demand of 21-22 million tonne for the third consecutive year.

"There was this atmosphere that sugar production might fall drastically due to drought situation. But the situation has improved. Earlier we were expecting 23 million tonne production, but now 23.5 million tonne. So, the situation is comfortable and prices are under control," the Food Secretary said.

Indian Sugar Mills Association (ISMA) too was satisfied with the year coming to a close. "It was a good year for the sugar sector. Mills could recover cost from July onwards. The cane price arrears to farmers have almost been cleared," ISMA Director General Abinash Verma told PTI.

"The Rangarajan Committee report on decontrol has come during 2012 which was on expected lines. We look forward to its acceptance by the government in 2013," Verma added.

PTI


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