Move likely to enable mills to better exploit market conditions, enhance returns
The government on Tuesday offered more flexibility to mills and co-operatives in offloading sugar stocks in the open market, aimed at enabling the cash-strapped sector to better utilise prevailing market conditions and enhance returns. The move, which came ahead of a decision by the Cabinet Committee on Economic Affairs on a proposal to deregulate the sector at least partially, suggested the government's seriousness in addressing reforms in the R80,000-crore sector, industry executives said.
Domestic sugar futures, however, discounted the move and hit their lowest since July 2012 on ample stocks and sluggish demand.
In a first, the food ministry allocated a half-yearly quota for sales in the open market — also known as non-levy sugar — instead of the practice of a four-monthly quota. It allowed manufacturers to sell 10.4 million tonne of sugar between April and September in the open market. As early as 2011-12, the government used to allocate monthly open market sugar sales quota for each mill, and then issued the quarterly quota before allocating the quota for four months earlier
in 2012.
"There would be no conversion of unsold non-levy quota into levy quota during the period of current release, i.e., April to September," a food ministry statement said. The government has also released 3,69,000 tonne of levy sugar — subsidised sweetener meant for state-run welfare programmes — for meeting requirements for the months of April to May, it added. In the past, the government had on several occasions converted unsold non-levy sugar to levy quota as a punitive measure against hoarding, especially in times of a shortage.
At present, mills are mandated to sell 10% of their output to the government for the public distribution system at cheaper rates that cover just around 70% of their cost of production. A conversion of unsold non-levy into levy quota means mills have to bear the additional costs beyond their levy obligation. As part of the efforts to partially decontrol the sector, the food ministry has moved a proposal seeking freedom to mills from levy obligation, in accordance with the recommendations of a panel headed by Prime Minister's Economic Advisory Council chairman C Rangarajan.
Hailing the government's decision, Indian Sugar Mills Association (ISMA) director general Abinash Verma said: "This will give flexibility to the mills 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.”
Despite the positive move, sugar futures dropped, with contract for May delivery on the National Commodity and Derivatives Exchange having fallen by 0.97% to an eight-and-a-half month low of R2,968 per quintal intraday. Prices of the M30 variety were ruling steady in the spot market in Mumbai in the range of R3,182-R3,366 on Tuesday.
Sugar output in India is expected to be in the range of 24.3 million to 25 million tonne in the current marketing year through September. Sugar production touched to 21.05 million tonne between October 1 and March 15, down 1% from 21.25 million tonne a year before, showed the ISMA data. India, the world's largest sugar consumer and second-biggest producer, needs 22-23 million tonne for annual consumption.