Sugar Decontrol

 
Sugar Free: Move to decontrol the sweetner comes amid differences
 
 
Our analyst Rahul Sonthalia updates our readers regularly on the sectoral updates. Here are his views on the recent updates in sugar sector.
  • The move for sugar decontrol i.e removing levy quota has once again gained momentum because of dip in sugar prices aided by both improved domestic forecast and higher production in Brazil, the world’s biggest exporter
  • Currently there are several restrictions imposed on sugar industry
  • Mills are expected to surrender 10% of their production to the government at prices below the market rate. This is called levy system
  • Levy sugar goes to meet the needs under the public distribution system
  • The remaining 90% is sold by mills in a restricted marketing environment
  • In present sugar control regime, the government decides the distance between two sugar mills and takes decisions with regard to sugar import and export
  • If the system of imposing levy quota is removed, government may have to buy at the prevailing market price
  • If prices rise, the government will then have to take on a subsidy burden, if it wishes to sell cheap
  • There have been suggestions that to compensate for this additional cost on government, a tax in the form of ces can be imposed on the industry
  • The sugar industry is divided into – Private sugar mills, under Indian Sugar Mills Association and co-operative sugar mills represented by the National Federation of Co-operative Sugar factories
  • ISMA wants the government to announce the decontrol decision at the earliest as they think it would be very beneficial for the industry as mills will be in a position to release floating capital after sale of sugar
  • On the other hand co- operative mills fear that decontrol will lead to crash in sugar prices
  • Still there are many issues which need to be resolved before decontrol can be implemented

 

Author:Rahul Sonthalia, Research Head, Kredent

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