Food ministry asks FMC to extend ban on sugar futures

Asks the regulator to wait till end of festive season to prevent price speculation.

The ministry of food and pubic distribution system has proposed to the Forward Markets Commission (FMC) to extend the ban on trading of sugar futures till the festive season is over.

Officials said recommendations have been sent to the regulator to prevent any scope of speculation in the sugar prices at a time when prices of all commodities on an average are ruling high. However they said a final decision on the issue will be taken only by FMC.

The ban on sugar futures will end on September 30. Currently, it is under review, they said. FMC had banned sugar futures trading in May 2009. Reportedly, it favours the ban to be annulled and trading in sugar futures to start from October 2010.

The ministry is of the view that sugar is an essential commodity and the demand is going to increase in the ensuing festive months.

“Now, food prices are consistently high and full estimate of the harvest (in kharif crops) will be assessed only when rain is over. Distribution to the below poverty line and facilitating availability of the sugar to the mass consumer at an easy price is the priority. Therefore, it is not a appropriate time to start trading,” official sources said.

They further added that even if the demand and supply of the commodity is not a problem, starting the futures trading after almost a one year lull may initially destabilise the market which in turn will have impact on the prices,” said official sources.

Prior to this, the food ministry, in order to ease supply of sugar in the market, had decided not to extend the deadline for sale of non-levy quota of September for sugar.

The ministry, on August 31, announced release of 1.9 million tonnes (228,000 tonnes of levy and 1.672 million tonnes of non-levy) for September.

Following this decision, sale of non-levy quota (free) sugar for September has to be completed before the end of the month.

The ministry had extended the deadline for sale of non-levy quota of sugar for August till September as lower price of the sweetener had restrained mills to release the commodity.

The government has been following a policy of partial control and dual pricing for sugar under which, a certain percentage of sugar produced by factories is stipulated by the government as compulsory levy at a price fixed by the government in every sugar season for distribution in the Public Distribution System (PDS). The non-levy, (free sale) sugar is allowed to be sold according to the quantity released by the government under the free sale sugar release mechanism.

The government has also taken steps for decontrol. Accordingly, the compulsory levy obligation of the sugar factories has been gradually reduced from 40 per cent to 30 per cent from January 1, 2000. With effect from February 1, 2001, the compulsory levy obligation has been further reduced to 15 per cent and the levy obligation now stands at 10 per cent of the production from. March 1, 2002.