With agricultural commodities under the watchful eye of an inflation-wary government, the Competition Commission of India (CCI) has launched a probe into alleged cartelisation in the sugar industry. It is enquiring into the Maharashtra Cooperative Sugar Association's decision not sell sugar below a price of Rs 2,700 a quintal last July.
The director-general of the CCI has called heads of sugar industry associations to appear personally, after which a report will be given to the commission. CCI last month launched a probe to ascertain if cartels were responsible for the recent sharp rise in the price of onions, another essential commodity.
CCI has on its own taken note of the sugar association's move and initiated an enquiry. It has sought information and data from the association. CCI also sought replies to detailed queries from leading companies Bajaj Hindusthan, Renuka Sugars and Balrampur Chini, although they do not individually face enquiry. Based on the information collected, CCI has found prima facie basis for examination.
Indian Sugar Mills’ Association (Isma) director-general Abinash Verma appeared before the CCI director-general last week. When contacted, Verma declined to comment on the matter. The Maharashtra State Federation of Cooperative Sugar Factories Managing Director Prakash Naiknavare has appeared today. When contacted, Naiknavare denied asking mills not to sell at below Rs 2,700 because "it violated the Monopolies & Restrictive Trade Practices Act". CCI has asked Naiknavare to appear again.
On July 23 last year, the Maharashtra State Federation of Cooperative Sugar Factories (with 190 sugar mills under its umbrella) had issued a statement following a first-of-its-kind meeting with representatives of sugar federations in Gujarat, Karnataka, Tamil Nadu, Andhra Pradesh and Uttar Pradesh. The statement asked the nearly 500 members from these states to refrain from selling sugar at below the benchmark price of Rs 2,700 a quintal which was the production cost. Isma was not a part of the meeting.
The day after the July 22 meeting, ex-factory prices of S-30 sugar in Maharashtra rose by Rs 150-160 to touch Rs 2,640-2670 a quintal – close to the “agreed” Rs 2,700. They remained around these levels for five days.
| PRICE POINT # India is world’s largest sugar consumer and second-biggest producer # Sugar has weight of 1.73731 per cent in wholesale price index inflation # Sugar and sugarcane prices are politically sensitive subjects # Government controls sugar industry via monthly release mechanism # Imports made duty free and exports banned in early 2009 to curb prices # After touching a record Rs 50/kg in 2010, sugar priced at around Rs 34 |
The decision was advisory in nature and was not binding on member mills. Therefore, many mills began selling at below the benchmark price after a week. Interestingly, Isma had rejected the idea of issuing a similar directive to its member mills at its committee meeting held in August.
Sugar is one of the most controlled industries in India. Attempts to decontrol it were made in 1971-72 and in 1978-79, only to be rolled back. The control on sugar is exercised by way of a release mechanism and levy obligation. Sugar mills can sell in the open market only according to the release mechanism. The Centre’s directorate of sugar issues release orders every month and gives mill-wise sale quotas. Mills cannot sell above this quota. A penalty is levied if they fail to sell the quota within the stipulated month.