The Government, on Tuesday, gave freedom to sugar factories to sell their open market quota.

Mills have now been given a free sale quota covering a period of six months, against the existing practice of fixing the quantity to be sold every month.

On Tuesday, the Government released 10.4 million tonnes sugar for April to September, which mills can freely dispose of any time during these six months.

In other words, they do not have to wait for quotas to be fixed every month.

While this is certainly a move towards decontrol of the sugar industry, it has, however, also raised questions.

“When there is already talk of the Government dispensing with the release mechanism altogether along with freeing the industry from levy obligation, why have they announced this piecemeal measure? Does it mean decontrol is off for the moment, despite Food Minister K.V. Thomas saying that it will be taken up by the Cabinet on Thursday,” an industry observer said.

There are others who feel the proposed de-control will anyway take off only from the sugar year starting October 2013.

To that extent, allowing a six-month release window for April-September could prepare the industry toward a decontrolled regime.

“A longer-period quota could possibly help millers prepare how to handle their inventories in a de-controlled scenario” a UP-based miller said.

Also, the fact that the Government has said “there would be no conversion of unsold non-levy quota into levy quota during the period of current release that is from April-September”, is an indication that decontrol has virtually taken place vis-à-vis the release mechanism.

The 10 per cent levy can only go for the sugar that gets produced from October onwards, he added.

An official statement on Tuesday said “The sale and delivery/dispatch period for 10.4 million tonnes would be from April 1, 2013 and up to September 30, 2013, without any inter-month restrictions”.

The non-levy quota would be apportioned and released only among those sugar mills which have submitted online production returns at the time of release.

Mill-wise quota apportionment would discount the entire non-levy quota released for October 2012-March 2013 and any quantity left unsold would not be not be available for sale during the period of April-September 2013.

Welcoming the Government’s decision, the sugar industry said such a move will give flexibility to millers to plan their cash flows.

“The decision not to convert any unsold non-levy quota into levy and also not have any inter-month restrictions of six-monthly quota are important steps towards reforming the sugar sector, said Abinash Verma, Director General, Indian Sugar Mills Association (ISMA).

Following the Government decision, the sugar futures reacted negatively.

The April contract on NCDEX ended lower by a little over one per cent to close at Rs 2,915 a quintal.

Similarly, the contracts for May and June also ended lower by about one per cent each.

Typically, the summer months of April to June form the peak season for sugar, when consumption peaks on rising demand from ice cream and beverage makers rises during these months.

For the current 2012-13 sugar year ending September 30, production is expected to be 24.6 mt, against domestic demand of around 23 mt.

(This article was published on March 26, 2013)
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