Require one Anna Hazare in Sugar industry's decontrol cry

In 1998, food ministry says the government had decided to decontrol the sugar industry in a phased manner.

On February 28, 2001, in his Budget speech, finance minister Yashwant Sinha says, "Government is committed to complete decontrol of sugar. But this must be irreversible."

On September 17, 2010, food minister Sharad Pawar says government will decide on sugar decontrol within a month.

Last week, CII urged the government to decontrol sugar and "set it free".

Nothing has changed in 13 years. The sugar industry continues to demand liberalization. Government promises and dithers. 'Decontrol' means mills are free to sell as much as they like, when and where they like; decide how many bags to hold; choose packing material; export when they wish; and not be forced to sell sugar meant for ration shops at a discount to the government.

All fair and pretty basic for any industry, you would agree. Even more so for an industry that transfers Rs 55,000 crore annually to 50 million village families. So why are not these demands met? The answer depends on whom you ask.

Industry blames government. After firm commitment in Parliament and frequent public promises, it never keeps its word. Unfortunately, government is handicapped by its desire to please everyone. When they meet millers in Delhi, ministers agree with the business logic of decontrol.

When they visit the farming heartland, ministers speak in favour of controls because they believe farmers will be pleased. Several state governments are against decontrol for the same reason: farmers don't want it. Truth is decontrol as defined by mills is irrelevant for farmers.

They will continue to get the government-fixed fair and remunerative price from mills with no choice but to buy. Whether mills sell sugar in a free or controlled market, farmer income is secure.

There are other fears. Parliament's standing committee on food, with 28 MPs from various parties, believes after decontrol mills would stop supplying ration shops.

They would also initially offload excess stocks and bring down prices. Later they would hoard and fleece consumers while the government watches helplessly. No Cabinet will allow decontrol till such political misgivings exist.

Government, meanwhile, blames industry for the delay and not without reason. For several years, while private mills were lobbying for decontrol, cooperative mills from Maharashtra were quietly working against it.

A free market means cooperative mills, run like PSUs, have to face competition and price volatility. The smaller private mills share their disquiet. Sudden competition would kill them.

Industry even today doesn't want de-reservation of cane area because with one stroke that takes away assured raw material supply. Competing for cane raises input cost and lowers margins. Reservation ties fortunes of farmers within 15-km radius to one mill, no matter how inefficient.

As they can't sell to other mills willing to pay more, farmers never get maximum value in a free market. Logically, farmers should lobby for area de-reservation. But they won't because in a bumper year, they benefit from assured buyers.

Timing is another issue. Mills want decontrol during shortage to profit from a free market. In a bumper year, they want government to continue regulating sugar supply and keep prices high enough to let the weakest survive.

But industry knows government will only listen during the bumper years. So that's when the clamour resumes. Luckily, just the talk of decontrol is enough to perk up equity market interest in sugar stocks. In seasons of plenty, news of such discussions give scrips a much-needed fillip. Government is quick to sense this and plays along.

Despite controls, in the last 13 years, the number of mills and their market caps has risen. Foreign companies are acquiring assets, the most recent being Olam International last week. At some level, the present system helps everyone. Herein lies the nub.
Sugar decontrol will hang fire as long as government and industry contain divided interests. It is impossible unless delinked from the cycle of shortage and oversupply. Government and industry have to negotiate and be willingness to face the political and business risks it entails.

Otherwise sugar decontrol will remain a tantalizing promise, always just a notification away.

source: ET