Traders seek ban on sugar futures

The Bombay Sugar Merchants' Association (BSMA) has called on a complete ban on sugar futures till the government does not remove the quota system and permit free domestic sales and exports.

In a recent meeting with the commodity market regulator, Forward Markets Commission (FMC), the representatives of the BSMA have suggested a complete ban on sugar.

The representatives argued that the sector is still under government's control and needs full freedom of sale in the market for smooth price discovery on exchanges.

"Sugar prices have increased by Rs 4 to Rs 6 per kg in recent years owing to futures trade and such a massive rise has been affecting consumers very badly," said a member, who was present at the FMC meeting.

The development is significant and may create a confrontation between the industry body and the government, which has been advocating not to restrict any commodity futures.

"Let the government decontrol the sector first and then put for sale wherever it wants," said Ashok Jain, secretary of BSMA.

"If I release my stock to the market presuming no further price rise and soon after that the government clears some export orders, then the prices would surely go up resulting in a loss to me. And if the market is decontrolled, I would be trading upon my judgement of the market," said Mohan Gurnani, president, BSMA.

Although, the ministry of consumer affairs, food and public distribution has rejected a proposal to curb futures trade in some of the essential commodities, including sugar, the association is in no mood to put forth its idea to the FMC.

The ministry was toying with the idea of imposing some restrictions instead of a complete ban on futures trade.

In a letter to the FMC, BSMA had said, "While adequate measures of liberalisation of the sugar economy have been implemented, the government has continued with the regulation regarding the monthly release mechanism, which naturally controls the quantity of sugar that can be sold by the industry in the open market every month. The government also keeps on tinkering with the release mechanism from time to time, either by increasing the quantum of monthly release or by extending the time limit for completing the sale of released sugar."

Citing the report of the Standing Committee of the Parliament on Food, Consumer Affairs and Public Distribution (2005-06) of the 14th Lok Sabha, which says that futures trading of essential commodities is not desirable, the association has added that it should be banned.

The letter further stated, "The futures have not at all met the objectives, including price discovery, hedging and arbitrage facilities and farmers' guidance."

Owing to favourable monsoon, sugar industry estimates a total production of 230 lakh tonne for the next season. In addition to the estimated opening stock of 55 lakh tonne, the total availability is estimated go up to 285 lakh tonne in the next sugar season.

India's consumption is estimated to touch around 185 lakh tonne this year and to about 190 lakh tonne during the next season.