)
In a major transformation in the sugar procurement mechanism, 10 large sugar producing states are planning to enter into memoranda of understanding with local co-operative mills for buying sugar to distribute under the Public Distribution System (PDS). Seven others have already floated tenders and are in various stages of finalisation. Northeastern states have sought transition time from the Centre. States, therefore, are set to commence sugar procurement from the open market soon.
Most states buying sugar for PDS from co-operatives mean that the window of state demand for sugar after decontrol for private mills is closed in those states. States will have to buy nearly 2.4 million tonnes of sugar in a year for PDS.
The governments of large sugar producing states, including Uttar Pradesh, Tamil Nadu, Maharashtra and Karnataka have decided to procure the sweetener from co-operative sugar mills that are largely run by political heavyweights, directly or indirectly. Since these co-operative mills contribute around 40 per cent of India’s overall sugar output, procurement from them would suffice states’ requirements.
Sugar co-operative mills have been struggling to compete with their private counterparts due to the former’s age-old production technology and consistent marketing system. Private sector mills that contribute around 60 per cent of India’s overall sugar output, however, move faster in their sales because of their quick decision making and prompt delivery mechanism.
“The government’s decision to buy sugar for PDS from co-operatives would help improve their efficiency. Private mills, however, would depend upon open markets for sale of their output,” said Vivek Saraogi, managing director of Balrampur Chini, an Uttar Pradesh-based private sugar producer.
While partially decontrolling sugar a couple of months ago, food minister K V Thomas had said the government would subsidise state governments at a maximum of Rs 18.50 a kg, while considering a sugar procurement price of Rs 32 a kg. Procurement below this price, however, would yield states lower subsidy from the Centre.
Andhra Pradesh, for example, has already finalised tender for 11,000 tonnes equivalent to the state’s one-month consumption at Rs 29.75 a kg. The state government is set to float tender for another 22,000 tonnes soon. Madhya Pradesh and Delhi have also finalised tenders for three months each and have faced no problem in procurement.
States like Rajasthan, West Bengal, Gujarat, Himachal Pradesh and Kerala have floated tenders, but received very poor response. Against the earlier procurement system of the Centre lifting the quantity from the factory gate, the government of Himachal Pradesh has asked mills to supply sugar at its 24 major depots across the state, which mills believe would add to their transport cost of around Rs 2.50 a kg. Since the state government is unwilling to foot the bill of additional transport cost, mills have evinced no interest in sugar supply to Himachal Pradesh.
While Goa has claimed having made an arrangement with local co-operative sugar mills, the transport cost of Rs 2.46 a kg has been a bone of contention between mills and the state government. Since the Centre abolished 10 per cent levy obligation for mills, the sugar industry is set to gain between Rs 2,500-3,000 crore, which earlier it was losing on sale of sugar at Rs 13.50 a kg through PDS.
