Deregulation of the sugar sector will trigger investments from global agriculture funds, Balrampur Chini, one of the top sugar producers in the country, appears to believe.

“The sugar sector will attract a number of large and global institutions and trading houses like agri funds and contra funds,” Vivek Sarogi, MD, Balrampur Chini, said in the company’s annual report.

So far, global agri funds have stayed away from India, and for good reason, believes Dhirendra Kumar of Value Research, a firm that tracks mutual fund investments. “So far, global agri funds couldn’t find any reason to invest in India.

Every aspect of agriculture, be it sugar or fertiliser, have been politically
controlled. These funds have choices globally, why should they come to India?” he told dna.

Indeed, the agri investment options offered by mutual funds in India don’t put money in domestic agriculture. DSP BlackRock World Agriculture Fund, for instance, puts most of its money in units of BlackRock’s global agri fund.

But that’s about to change.

The government last month removed a 10% levy, giving sugar mills the freedom to sell their entire output in the open market.

“Now that the playing field has been deregulated and sugar pricing permitted to find its own level, a number of these players will be inclined to enter the country and take positions,” said Saraogi.

Come to think of it, what makes these invest in commodities like sugar, coffee and grains, or even livestock, farm equipment and fertilisers? Growth in demand for food led by a rise in global population, supply constraints, slowdown in yield and higher farm investment are some of the long-term positives that these investors are betting on.

The freedom given to sugar mills is thus expected to excite the players.

“Earlier, sugar companies sold periodically to dealers as advised by the government release mechanism. Progressively, companies will have the option to pre-sell an entire season’s output to institutional buyers who, in turn, can lock in their prices, or to global fund managers against committed contracts with the objective of securing their cash flow,” said Saraogi.

But that might take a while as, unlike sugar, sugarcane still remains a controlled agri produce where states control the prices through the state advisory prices paid to farmers.

“We dislike buying and holding the actual commodities as high prices give farmers an incentive to produce more, ultimately pushing down prices,” BlackRock said in its report on investment opportunities in emerging markets for 2013.