Retail sugar prices to fall in short-run: Abinash Verma

Q&A with Director General, ISMA

After months of wait, government finally bit the bullet and decided to dismantle the levy sugar obligation and release order mechanism, measures which will unshackle the over Rs 80,000 crore Indian sugar sector.

In an exclusive interview with Business Standard, Abinash Verma, director general of Indian Sugar Mills Association (ISMA), the premier association of Indian  sugar industry, expected retail price of sugar to fall in the short-run because of measures. Edited excerpts.

How do you think the Indian sugar industry will be benefitted with the abolition of the levy sugar mechanism and dismantling of quota system. Also in financial terms what kind of benefit will accrue to the industry?

Abolition of regulated release mechanism will give freedom to mills to sell sugar on commercial considerations, allow better cash planning and reduce sugar inventory, interest burden and costs. Similarly, removal of burden to supply levy sugar at about 60% of their cost of production, will reduce industry's losses by Rs 3, 000 crore annually. These decisions will help the industry to achieve its potential growth of 20-25% per annum

There is common perception that retail price of sugar will increase once the levy sugar mechanism is dismantled. What are your views on this and if the prices will cool down subsequently?

With the freedom, mills would initially sell more sugar to pay to banks and farmers (cane price arrears have crossed Rs 10,000 crore), which will put pressure on sugar. Therefore, sugar prices may see a fall in the short run, and only after some time, may crawl to cover the cost of production. I also expect that a part of the reduced costs may also get passed to consumers.

How will the farmers benefit if levy sugar is abolished and quota system dismantled?

With better management of cash flows, mills would be much better placed to make timely payments to farmers, which will help check cane price arrears. Part of the benefit of better returns to mills due to removal of levy obligations from them and reduced costs will also translate into better remuneration to farmers. One sees more investments both at the mills as well as farm level, which will help farmers improve yields and thereby their incomes.

Finally, this a first step towards unshackling the sugar sector. What more according to you needs to be done to push further reforms in the sugar sector?

The next step, as even recommended by Rangarajan Committee, would be to rationalise the sugarcane pricing. As is the practice all over the world, there needs to be a linkage between cane price and sugar price realisation. This will reduce the sugar production cyclicality, ensure stable returns to farmers and industry, and supply sugar to consumers from within the country and not expose them to imports.