The Union food ministry is likely to do away with the recently introduced weekly release mechanism for sugar mills. It may change the weekly mechanism to fortnightly system, said informed sources.
Mills have been lobbying before the government to do away with the weekly release mechanism as it forced them to sell sugar at a discount.
On April 16 this year, the government changed the monthly release mechanism to a weekly system to pressure mills to sell regularly in the market. The purpose was to ensure an open market availability at a time when the country’s sugar output touched a three-year low. Retail prices have jumped by about 40 per cent since October last year to Rs 28 a kg.
Mills were instructed to strictly comply with the new mechanism, failing which the unsold quantity would be converted into levy sugar and would be sold through the public distribution system (PDS). The realisation from levy sugar is just Rs 1,300-1,400 a quintal, way below the open market realisation of Rs 2,300-2,350 a quintal.
Sources said no mill has been able to comply with this weekly mechanism even since it was introduced. Moreover, the unsold quantity at the end of April has not been converted into levy sugar.
Prior to this weekly formula, sugar mills used to be allotted monthly sale quota by the Directorate of Sugar in the food ministry. While mills were not allowed to sell beyond this quota, any unsold quantity at month-end used to be converted into levy sugar.
This year of shortage follows two years of oversupply, when the government had to provide mills with export assistance. In the recent past, the government has allowed duty-free import of raw sugar by mills and duty free import of 1 million tonnes of refined sugar by public agencies. It also banned futures trading and imposed quantitative restrictions on traders to check price rise.
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Meanwhile, mills as well as analysts, expect sugar prices to remain firm in the year ahead, since even with a projected 20-25 per cent improvement, the output next year will be lower than the demand of 22 million tonnes. Output this year is estimated to be 14.7 million tonnes, down 44 per cent from the previous year.
Sugar prices draw regular government intervention since the commodity has a weight of 3.62 per cent in the wholesale price index.