Farm minister's talk of sugar reform boosts mills

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By Mayank Bhardwaj and Ratnajyoti Dutta

NEW DELHI (Reuters) - Farm Minister Sharad Pawar has invited sugar millers to discuss lifting state controls on the sweetener, raising hopes of reform in one of the most tightly regulated sectors in the economy.

Industry officials welcomed the minister's statement, which follows the government's decision to allow market-driven prices of gasoline last month despite protests and fears of inflation, and to reform fertiliser prices in February.

"Controls on sugar have proved counter-productive on many occasions as they couldn't check a rise in prices. Free market forces can bring a balance in sugar price fluctuations," said Ranjit Puri, former head of the Indian Sugar Mills Association.

Shares of main sugar producers Bajaj (BAJAJAUTO.NS : 2101.05 0) Hindusthan, Sree Renuka, Simbhaoli Sugars, Dhampur Sugar and Balrampur Chini rose by up to 6 percent after the announcement.

Pawar said adequate rainfall in recent days and expectations of a normal monsoon in the rest of the June-September season had raised prospects of a strong rebound in farm output after last year's drought, and said he expected a fall in food inflation, currently at an annual 12.6 percent.

With more cane planted in the main growing areas, market forces are unlikely to raise prices.

"The sugar sector is heavily regulated. This is the time (millers) and government should sit together to decide on easing restrictions on the sugar sector," Pawar told the conference.

The Indian government controls the price of cane, directs mills to sell up to 20 percent of its output at a big discount for welfare schemes, decides how much sugar should be sold in the market, and imposes limits on stocks that can be held by big buyers.

MARKET FORCES

Still, not all were convinced that reforms would be pushed through.

Anmol Tilak, an analyst with Kotak (KOTAKBANK.NS : 763.6 +3.55) Commodities, said the government talks of reform only when supplies are steady.

"These talks of control or decontrol of the sugar sector return every three to four years in tune with production cycle in cane. It talks of de-control when the production outlook improves, but imposes controls when production falls."

Last year, when India's sugar output dipped, the country became a large sugar importer, a key factor driving New York raw sugar futures to the highest in nearly three decades.

This year's June-September monsoon was 16 percent below normal last month, but rainfall has revived significantly, calming fears of shortages and higher prices.

Pawar said India may ease restrictions on the amount of sugar big buyers such as manufacturers of soft drinks, ice creams and biscuits can store as local output was likely to rise. Large buyers account for more than two thirds India's sugar demand.

India was also considering a tax on sugar imports, he said.

Last year, India withdrew the import tax on sugar and asked big consumers to trim their stocks to ensure steady supplies in the country as local output fell as farmers reduced cane planting and a drought hit output.

On Monday, the minister told reporters the government was planning to tax white sugar imports in the new season that starts in October, but would wait until it gets a clear picture of the cane crop in the next two months.

"Decisions will be taken at an appropriate time," Pawar told millers at the conference.

(Writing by Himangshu Watts; Editing by Michael Urquhart)

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