Two weeks ago, government announced the decontrol of petrol prices. This seems to be only the beginning. Agriculture minister Sharad Pawar on Friday 9th July 2010 gave a hint on the possibility of decontrol of the sugar sector. The sugar industry has been long waiting for this decontrol of sugar prices.
Sugar sector has been facing a price decline since January. The sugar industry is actually the only industry that has been supplying product at a fixed price which has no relation to the actual cost and needs to be funded by the government. Government has also been supplying sugar in the PDS (Public Distribution System) to the targeted people below poverty line. The government is ready to continue doing so. However, the industry needs the price to be placed at market price. The subsidy given should be through the budget.
It is historically seen that the sugar industry has been under the government control. Narendra Murukumbi, MD, Shree Renuka Sugars said that the industry has a tendency to run to the government when faced with any problems. Also, during times of crises the government tends to increase the amount of control on this particular sector. According to Mr. Nareendra the need for the hour is break free of this control mindset.
The sugar industry has been facing a big shortage since the past two years. This industry however supports a large number of farmers in the country. In a reformed or decontrolled sector the industry will continue to have a minimum price set by the government on cane price. This definitely needs to be protected.
Decontrol of the sugar sector is a good move on the government’s part. The sugar industry needs to be treated with fairness. The industry today is ready to protect and support the farmers by paying high sugarcane prices if they can also get a good price for sugar in the open market. India being one of the largest consumer of sugar in the world can then afford to import sugar from Brazil on a permanent basis increasing imports.
Now is the right time for the decontrol of sugar as the current economy suggests that the prices of sugar will not go very high and will not hurt the consumer as it would in comparison to the prices if this decontrol was done earlier. The sugar industry expects to have a good production in the coming up next year and will definitely benefit the industry in the long term. But if you consider short term time frame, the industry might face some ups and downs. But in all the decontrol of prices will be very beneficial for the sugar industry in the long term.
The government is also considering a tax on sugar imports. This imposition of tax on imports will hardly have an impact at this point. However, the tax imposition is supposed to be good for the sugar prices (from the industry point of view) . The prices of sugar can be estimated to move upwards a little bit considering the market sentiment and reaction to the announcement.
“Decontrol is a must to promote competition in the sugar sector – just like telecom. It would benefit consumers, farmers and the millers. Let us compete for sugarcane which would ultimately benefit the farmers,” Vivek Saraogi, president of (ISMA) Indian Sugar Mills Association and managing director of Balrampur Chini Mills, said. Indian Sugar Mills Association has been long awaiting this decontrol in sugar prices.
The ultimate effect of decontrol will be a price rise on sugar, however this will be beneficial for the sugar industry in the long term. It would be recommended to invest in sugar industry stock with a long term view.
Nice informative article, Malika. I guess that even though the resultant price rise will not be welcomed by the consumers, investors in the sugar industry will rejoice.
Is there an element of subsidy by the government? If yes, it will also help the Government to reduce their fiscal deficit (albeit by a bit only)
In any case, a nice informative article. Keep going.