The food ministry has taken a strong exception to the commerce department’s “unilateral decision” to reject the former’s recommendation and strip a sugar industry body of its exclusive right to export the sweetener to the EU and the US under a preferential quota system.

In a sign of an escalation of the tussle between the departments of food and commerce, food minister Ram Vilas Paswan has written to commerce minister Nirmala Sitharaman, seeking a review of the latest decision.

Paswan is peeved that the commerce department has made a u-turn even on its own decision made in January after consultations with the food ministry. Paswan has got the support of former food and agriculture minister Sharad Pawar, who has endorsed the food ministry’s recommendations in a separate letter to Sitharaman.

FE was the first to report on May 4 the tussle between the departments of food and commerce on the export issue.

The food ministry had suggested to the commerce ministry that the Indian Sugar Exim Corporation (ISEC) — formed by two leading sugar industry associations representing both private mills and co-operatives and the designated agency for such exports since 1991 — be the designated agency for the exports of 10,000 tonne of organic sugar to the EU and 8,200 tonne of raw sugar to the US under the preferential quota system again in the marketing year through September. Exporters get to ship out sugar to the EU and the US at concessional tariff under the system.

“It is understood that the department of commerce had issued an office memorandum dated January 1, 2015, nominating ISEC for exports of sugar under the EU EXL quota and the US TRQ quota for the current season 2014-15. The nomination had been made on the basis of the request of the department of food and public distribution after getting my approval in this regard,” Paswan said in the letter.

“However, through a subsequent order, the department of commerce has reviewed the decision, and the nomination of ISEC for executing preferential quota has been withdrawn,” he said.

So technically, even a Louis Dreyfus or a Cargill can export sugar from India under the preferential quota system, instead of only the ISEC members who account for 90% of the country’s sugar producers.

Paswan said the food ministry has consistently stated that the benefits arising out of the quota-based exports should be utilised for the larger benefit of the industry.

“It may not be optimal nor desirable that export benefits are cornered by a single private entity. The funds generated by ISEC are exclusively utilised for the benefits of the sugar industry and due to its representative nature, it was considered appropriate to continue the sugar exports under the preferential quotas to the EU and the US through ISEC,”he said.

According to the latest notification by the Directorate General Of Foreign Trade, any entity or trader can now export sugar to the EU and the US under the quota system. It has also said while the additional DGFT would oversee sugar exports to the EU, along with Apeda, the Apeda would monitor the outbound shipments to the US.

In his letter to Sitharaman, former Union minister Pawar is learnt to have said the funds generated out of the exports under the quota system are utilised by ISEC for various purposes –including for outbound shipments of excess sugar even under losses to pay to cane farmers. So if any other entity is made responsible to export sugar, it may not be possible to ensure that the funds from such exports are used for the benefit of the entire industry, Pawar has added.

Separately, ISEC has sought Prime Minister Narendra Modi’s direction for a probe into the commerce ministry’s latest decision, saying the move would benefit only a few petty traders at the cost of the entire industry.

ISEC has demanded the notification be kept in abeyance until it’s established on what grounds the food ministry’s suggestions were rejected by the commerce ministry and why the Cabinet decision of 1996 was overruled unilaterally by the ministry. The Cabinet had in 1996 decided that exports to both the EU and the US would be handled by the same agency, and not by two separate agencies, as is the case here.

Although the profits from such exports have been minuscule at around R15-20 crore a year in good times, the timing of such a move has baffled the industry. While the Centre is going all out to enhance the financial strength of cash-strapped domestic mills to get the record cane arrears of R21,000 crore cleared at the earliest, the commerce ministry’s decision seems out of sync with its efforts. Since the country ships out organic sugar to the EU under the quota system, exporters tend to enjoy a  higher margin than that on the shipments of the usual raw or white sugar.

The industry body is also sore that traders, who aren’t required to purchase cane compulsorily at high state-fixed prices and aren’t, therefore, vulnerable to huge losses due to elevated raw material costs, are being given the same right to exports as the sugar industry.