Sugar level right for decontrol

Sugar decontrol has been in the air for nearly eight years now but New Delhi has failed to effect any significant policy change to enable the process. In times of glut, decontrol was thwarted on the ostensible ground that market prices would collapse and hurt producers; and in times of shortage, the excuse was consumer protection. Now, the Agriculture Minister has hinted at the possibility of sugar decontrol — this time, with some seriousness. To be sure, sugar is a vestige of the control and quota raj of the 1980s and one of the handful of industries still caught in a tangle of official restrictions. Indeed, the time is right for decontrol, simply because the domestic sugar market is in a state of balance — there is neither glut, nor shortage. If anything, prices are largely consumer-friendly. Sugar export has been opened up to liquidate the small surplus and prevent prices from collapsing. Imports continue to be allowed duty-free. Importantly, indications for next year (2011-12) are that the sugar market will again remain fairly balanced. With the market in balance, as also the interests of producers and consumers, there can be no forceful argument against decontrol.

Essentially, two elements are involved in sugar decontrol. One, withdrawal of the ‘levy system,' through which the government mops up a tenth of sugar produced by the mills for sale through the public distribution system (PDS); and, two, abolition of the so-called free-sale quota mechanism that restricts the mills' freedom to market the commodity. Doing away with the levy will force the government to purchase sugar for PDS from the open market; this, in turn, will advance market-driven pricing. The free-sale quota for mills is an anachronistic control that deserves to be done away with expeditiously. Again, marketing freedom for mills will enable more transparent pricing of the sweetener. Cane growers' interests should be protected by continuing with the annual Statutory Minimum Price (SMP) for cane. While the input price is fixed by the government, the output (sugar) price will be determined by the market. The option to import should be available, to keep domestic prices under check.

Importantly, removal of at least these two impediments (levy system and free-sale quota) will improve the investment climate which, in turn, will help kick-start the process of modernisation as well as consolidation of fragmented capacities. While decontrol is imperative, policymakers and industry together must look ahead and plan for the future. Breaking the cyclical nature of cane output, raising cane yields, making cane cultivation more water efficient, improving sugar recovery, researching the adverse effects of global warming on sugar cultivation, and examining the impact of the plethora of trade agreements are some of the issues that must engage stakeholder attention. With economic growth and rising purchasing power, demand for food products including sugar is set to burgeon. It is critical that the sugar industry seizes this market opportunity.

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