The Hindu Business Line : Policy proposals may help sugar realisations

Sugar stocks have been catalysed by reports that the sugar sector may be decontrolled with effect from the coming sugar season starting October 1. The partial decontrol now being proposed may aid better realisations for sugar producers and allow them greater flexibility in planning their production and sales.

Though the gap between the public distribution system and open market sugar prices isn’t very wide at present, the dismantling of the levy mechanism will enable producers to take fuller advantage of any uptrend in sugar prices, should the sugar cycle return to a buoyant phase. The proposals require the clearance of the Union Cabinet.

The “decontrol” now being proposed, will allow sugar mills to sell their entire production in the open markets. They are presently required to surrender 10 per cent of output (termed levy quota) to the government at subsidised prices towards PDS supplies.

Dismantling this “levy” quota may allow producers to sell their entire output in the open market. Realisations will benefit to the extent that the levy portion (amounting to 10 per cent of production) may now fetch open market prices of about Rs 15-16 per kg, instead of levy prices of Rs 12.2 to Rs 14.3 per kg. Mills in western Uttar Pradesh, Karnataka and many eastern markets may be particular beneficiaries as levy prices for these regions have been among the lowest.

More flexibility

There is also a proposal to do away with the monthly “release” mechanism for sugar, through which the Government decides the total quantum of sugar that mills may sell in the market each month. This relaxation may leave mills free to plan and time their production and marketing schedules without regulatory intervention and reduce their carrying costs.

But it could contribute to sharper seasonal swings in sugar prices. The release mechanism evens out any disparity in sugar availability between the peak crushing months (October- March) and the lean months (April- September).

However, the policy measures being proposed now will go only part of the way in easing the regulatory intervention in the sector. Liberalisation of command area norms for sourcing of cane and a market-determined mechanism for cane pricing will be the more crucial “decontrol” measures to be watched out for.

Related Stories:
Govt set to decontrol sugar industry from October 1
Centre mulling decontrol of sugar industry afresh

More Stories on : Sugar | Stocks | Agricultural Policy

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