India has taken steps to remove curbs on domestic sugar supplies after months of debate as the world’s second-biggest producer hopes to iron out sharp swings in output that have triggered volatility in global prices. India, the biggest sugar consumer, will no longer force mills to sell sugar to the government at a discount and will not limit the amount they can sell in the open market, Food Minister K.V. Thomas told journalists on Thursday after the cabinet agreed the changes.
The restrictions were in place partly to keep a lid on local prices and maintain cheap supplies for India’s half a billion poor, and partly as a legacy of a planned economy in which the state regulated most sectors. Analysts have said the tight regulations have caused sharp swings in output, which have led to large-scale imports and exports every few years. India’s frequent imports and exports can trigger volatility in global prices.
Thomas and Farm Minister Sharad Pawar, who previously sparred over trade policies, have both supported freeing up the sector after a report in October 2012 recommended lifting curbs. Until now, the government has decided the quantity of sugar mills can sell in the open market and has bought 10 percent of their output at a big discount. Thomas said the government could review purchasing policy after two years.
Deregulation of the world’s biggest sugar market is likely to end a boom-and-bust cycle in plantings, although in the long term farmers may seek to increase revenue by increasing output, analysts said. In New York, prices are languishing near three-year lows below 18 cents per lb, close to break-even for higher-cost producers, as the global market braces for a hefty global surplus amid record production and stagnant demand.
May raw sugar on ICE Futures US settled up 0.17 cent, or 0.97 percent, at 17.67 cents a lb on Thursday, recovering from their lowest levels since July 2010 hit a day earlier. In London, May white sugar on Liffe slid 50 cents, or 0.10 percent, to $504.4 a tonne.
The sugar sector reforms follow changes in other sectors such as steel and cement as well as other measures such as raising the price of subsidised fuels to cut the budget deficit and opening up the retail sector to foreign supermarkets. Some government officials had argued that costs of food subsidies would go up if the sector was liberalised, because the state would have to buy sugar on the open market, further fanning food inflation, which is above 11 percent.