Mumbai, Oct 20 - India is unlikely to hasten reforms in the sugar sector in the world's biggest consumer, where sugar is a politically sesitive commodity, in the second year when supplies are set to fall sharply short of consumption.
India produced 15 million tonnes sugar in 2008/09, far below its demand of 23 million tonnes, forcing imports after years of being an exporter - touching off a global price flare-up.
Output is likely to remain flat even in the year-ending September 2010 keeping prices bouyant.
"Sugar being an essential commodity, the government would always like to ensure prices are kept and maintained at a reasonable level," said BJ Maheshwari, director, Dwarikesh Sugar
"I don't think in 2009/10 the government will lose its control on sugar."
Prices have leapt by more than half in 2009, prompting curbs on sugar trade, despite a strong clamour for decontrol. Sugar is the most-controlled food commodity in India with both buying and selling strictly regulated.
India doubled the levy quota, or the amount of sugar millers have to sell at a lower price to the public distribution system, to 20 percent. Millers, who earlier lobbied to abolish the system, are now negotiating to raise the levy price.
The government also decides when millers can sell in the open market and fixes the amount of sugar each mill can sell monthly.
In May, India's commodities market regulator barred the launch of new sugar futures until the end of 2009, and is likely to extend the policy for one more year.
The amount held by wholesalers and bulk buyers are limted, and in April India allowed duty-free imports of raw and white sugar, depressing local prices.
"Decontrol is not possible this year. We should have worked upon it two years back, when cane was ample and sugar was not so important," said an official at Shree Renuka Sugars .
WAITING OUT THE WOES
"If production comes above consumption level then the government will consider decontrol. But, even that would be a very slow process," said Veeresh Hiremath, a senior analyst with Hyderabad-based brokerage, Karvy Comtrade.
In 2006/07 and 2007/08 India had a bumper crop and produced far in excess of domestic consumption, damping prices and prompting export sops.
India has raised cane prices year-on-year, irrespective of production, to appease farmers, hurting profitability. Millers now want cane rates to be linked to sugar prices so they can pay less to farmers in a downcycle.
"This year we'll be paying higher price for cane but in the down-cycle when we have a glut, we'll have to pay this same higher price, which is not feasible" said M Manickam, Managing Director at Sakthi Sugars
"For us to be profitable, the government will then have to ensure that sugar prices remain high."