Sugar decontrol plan may be a non-starter

The Rangarajan Committee today recommended deregulation of the sugar sector by giving freedom to mills to sell sugar in the open market.

But it is a freedom that will come with several complications.

The crux of the recommendation is to use the Fair and Remunerative Price (FRP) fixed by the central government as the base price for sugarcane, while Rangarajan has also suggested that sugar mill should share a part of their market gains with farmers. Rangarajan has said that 70 percent of market prices realised from sugar and sugar products can be given to cane growers.

 Sugar decontrol plan may be a non-starter

Reuters

Currently, sugar mills are expected to sell "levy" sugar to the government at a controlled price. They pay farmers for cane on the basis of FRP or a State-Advised Price (SAP), whichever is higher. SAP is often a politically-determined price in sugar-producing states.

However, Rangrajan's suggestion that SAP be abandoned may not be acceptable to states, which like to make political gains from announcing such prices. Millers, on the other hand, have been demanding that the cane price should be market-driven so that they can control input costs.

Market analyst SP Tulsian thinks the government is likely to only accept the proposal for abolishing levy sugar as the state governments may not agree to scrap SAP.

"Talking about that 70 percent sharing, if I go by the present formula where ethanol prices and bagasse prices are ruling at a very high price, the (profit share) ratio for farmers is at about 65-66 percent. I don't think mills will agree to share 70 percent on the entire product (including the byproducts of bagasse and molasses). That will be seen as a negative by sugar mills," he added.

While sugar industry bodies, the Indian Sugar Mills Association (ISMA) and the National Federation of Cooperative Sugar Factories, were seeking decontrol of the sector, including freedom to sell sugar in the open market and doing away with the levy obligation for the public distribution system, several states have opposed decontrol.

UP, a major sugar producing state, has already opposed decontrol. The state government wants the right to fix the prices of cane to stay on a par with the other states. This is because Uttar Pradesh often use cane prices to woo the farm vote, and decontrol won't cut any ice ahead of the assembly polls. UP and Maharashtra are the two largest sugar producers that jointly account for 60 percent of the sugar in the country. The government will have a tough time trying to convince them to adopt the new policy.

Sugar Decontrol saga

Updated Date: Dec 20, 2014 13:37:43 IST