AGRO-INDUSTRY

enveloping every segment of its functioning. Some major areas are:

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Levy obligation at 10 per cent of the sugar mills production (last year 20 per cent) to meet PDS needs. Levy price below cost of production. Monthly release mechanism for free sale quota, which is further tightened to fortnightly or weekly quotas on occasions. Restrictions on inventory holding norms for bulk consumers and traders in sugar. Mandatory packing in jute bags. Export ban through backdoor method of release mechanism. Mandated cane price (by both Centre and state) and regulated cane area.

for industrial and commercial purposes. This despite a ruling to the contrary by the Apex Court that their control can only be on potable alcohol. The Electricity Act, 2003, guarantees open access, but state governments impose intimidating restrictions on inter-state power sale.

industry sources when the requirement of poor is met through PDS, there is little economic justification for the government to stifle sugar prices that only benefits bulk commercial consumers but is clearly detrimental to sugarcane farmers.The future market shall be allowed to thrive for effective price discovery and to hedge price risk.

By-products de-risk the industry Levy sugar pricing...

Levy sugar price is determined based on a cost study undertaken by the government. The government makes several unrealistic assumptions ignoring mandatory and real cost factors. When the UID programme is comprehensively introduced, this problem may get resolved since direct cash subsidy to the poor through electronic transfer using smart cards is envisaged, instead of differential pricing. Bagasse and molasses were treated as waste products until a few decades back. These have now turned into valuable by-products. They have helped in broad-basing the revenue stream and de-risk the industry from volatile changes in sugar prices. Bagasse helps in the production of renewable energy and is eminently environment friendly. But, against the potential of 5000 MW, actual achievement is a mere 1560 MW. Ethanol produced from sugarcane molasses is an environment-friendly fuel that improves oil security and reduces import dependence. While Brazil was a pioneer in ethanolblending of petrol and has maximised its usage, India is still struggling to catch up with its moderate target to blend a minimum 5 per cent with petrol. There appears an overwhelming preference on the part of state governments in allocating molasses for

Why is sugar singled out?

It is well conceivable that the government of the day is called upon to take proactive steps to regulate important industries in public interest. It, however, looks strange and startling that sugar is being singled out on several counts with overarching controls and restraints even today that is rather unintelligible.
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Free sugar price

Market manipulation through free sale quota has often come to distort domestic sugar prices. Nearly 74 per cent of free sale sugar consumption comes from high income households, bulk commercial consumers for the manufacture of beverages, biscuit, confectionary and sweet meat. As per

The government largely bears the burden of PDS supply to poor for commodities such as kerosene and foodgrains while levy sugar burden befalls on the industry. Mandatory jute packing was progressively dispensed with for other manufactured goods such as cement and fertiliser but is still retained for sugar. Both input and output prices are controlled through fiat or market intervention mechanism. Sugar exports are under OGL but sugar mills do not always get export quota when world prices are high. Indigenous production should normally get preferential treatment over imports for all goods. On the contrary, to protect consumer interest, when sugar prices are high and there is a shortage, sugar is imported often with zero import duty, with no levy obligation, accelerated quota releases and total exemption from inventory norms for bulk users. Molasses was decontrolled by the Centre in 1993. States, however, keep a tight hold on molasses even
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INDUSTRIAL ECONOMIST MARCH 2011