The removal of the release mechanism coup­led with the abolition of levy on sugar manufacturers by the Union government in April 2013 was a long-awaited policy change being pushed by the sugar sector for a long time. This virtually ended the over five-decade-long government co­n­trol on the release and supply of sugar, both in the open market as well as through the public distribution system.

Critics opposed the decision to decontrol sugar distribution, arguing that this would result in a runaway increase in prices, as the sugar manufacturers could decide the time of sale as well as the quantity to be released in the open market. However, there has been no sign of unimaginably high prices even three years into this deregulated regime. On the contrary, sugar prices keep touching new lows, forcing the mills into losses, and mounting arrears on payments to cane growers.

There is no empirical data to suggest that the prices can be regulated through a system of control, as was practised earlier. On the other hand, there was ample criticism of the government forcing sugar mills to subsidise PDS sugar at prices lower than the open market to meet its social obligations. In fact, without going too much into the past, a study of sugar price trends in the preceding decade of levy control clearly indicates price movements that defy the logic of the release system. In 2006-07, for example, the open market prices of sugar were lower than the price at which levy sugar was collected from the mills to be sold through PDS. Likewise, towards the beginning of 2009, prices reached record highs, despite comfortable stocks and the government releasing additional quantities in the market. These instances are clear indications that the system of controls was a thing of the past that did not meet the objectives.

As has been seen with other commodities, especially the politically sensitive onion and pulses in recent times, price movements are a function of both the demand-supply scenario as well as management of the prevailing market sentiment. Local market situations resulting from short-term supply shortages compared with a splurge in demand are not to be considered in the case of sugar.

It must necessarily be accepted that the domestic price of sugar is now in greater alignment with global prices. With the setting up of the coastal refineries and global shipments, it is possible to stock up on raw sugar at attractive prices in times of surplus production and utilise the same during periods of lower production. Domestic markets now respond much faster to global sentiments and exchange rate fluctuations in the major sugar producing ec­onomies, most importantly, Brazil. The depreciation of the Brazilian real must be considered as a major factor in the bearish trends that were witnessed in the global sugar markets, earlier this season. This, in turn, impacted domestic prices that fell below the local cost of production for a major part of the past 12 months.

Having accepted the gr­eater alignment of the Indian sugar prices with those prevailing in global markets, there is an imperative need to adopt global standards and practices if the domestic sugar industry is to move forward. While technologically, we are arguably ahead of the other sugar producing nations, we need to bring our commercial practices in tune with the emerging trends globally. There is ne­ed to set up a vibrant and participative futures market that can send the correct pr­ice signals to farmers.

Th­ere is adequate crushing capacity in the country to meet domestic requirements as well as cater to the world market or the ethanol sector as may be economically more prudent. Committing larger acreages to sugarcane is not in the national interest. So, policy changes must be targetted accordingly, to increase productivity thro­ugh investments in variety and better agronomic practices. Farmers must have a choice through price signals and should exercise their option to plant sugarcane or other cash crops.

There has to be an increased awareness that the value of the sugarcane crop, and not the price of sugar, must be the determining factor in the sugar value chain. To ensure that the correct economic signals are sent to the farmers, it is imperative to eschew the politics behind sugarcane pricing in favour of rational economic considerations.

Adm­inistered prices have ra­rely worked except for short durations and accordingly, it is vital that the process is taken to its logical conclusion after taking the first step towards deregulating the sector. Market determined prices for sugarcane should be considered and this has been amply demonstrated by the success of the revenue sharing formula practised in other sugar economies.