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LATEST NEWS UPDATES | Food ministry comes with two plans to fix retail price of sugar-Rituraj Tiwari

Food ministry comes with two plans to fix retail price of sugar-Rituraj Tiwari

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published Published on Sep 10, 2012   modified Modified on Sep 10, 2012
-The Economic Times

At a time when the Rangarajan committee is giving final touches to its recommendations on sugar deregularisation, The Union food ministry has come up with two proposals for fixing new retail price of sugar sold in ration shops (levy sugar) to reduce the food subsidy bill.

According to the first proposal, the food ministry has recommended to free up the prices of levy sugar and allow state governments to fix it as per their financial resources. This would result in different levy sugar prices in different states and Union territories.

The second proposal says that the food ministry may fix a uniform price for the levy sugar across the country in the price band of existing Rs 13.5 per kg to Rs 25.37 per kg - the price at which the subsidy on levy sugar is nil. "With the deduction of every rupee from Rs 25.37 a kg, government will have to shell out a subsidy of Rs 270 crore. Now the government has to decided how much subsidy it want to pay for sugar distributed to the poor families," said a food ministry official.

The food ministry has circulated both these proposals to various ministries including agriculture ministry, finance ministry and the Planning Commission. While the plan panel is in favour of allowing state governments to decide their levy prices, agriculture and finance ministries back uniform fixation of sugar prices by the Centre.

The Commission for Agriculture Costs and Prices (CACP), which advises the government on price policy of major agricultural commodities, has also recommended the government to do away with its levy sugar obligation, and purchase the commodity for PDS operations directly from mills.

Under the levy obligation, the government supplies around 2.7 million tonne sugar to poor families and to defence forces at rates much below the market price. For this, sugar mills are required to sell 10% of their output to the government at cheaper rates.

"This amounts to a subsidy of about Rs 7,000 per tonne, and about Rs 1,900 crore for distribution of 27 lakh tonne in PDS (excluding supply to Army Purchase Organisation).

This is primarily being borne by the sugar industry, but consequently is borne by farmers, as the industry cannot pay them higher price partly due to the levy obligation," the report said.

The food ministry, earlier this year, had proposed a 30% hike in levy sugar prices from Rs 13.5 a kg to Rs 17.5. However, the proposal could not get through.

The levy price has been kept unchanged at Rs 13.5 per kg since 2002. This is despite the steady increase in ex-factory price - the rate at which the government buys sugar from mills. The ex-factory price of levy sugar has been raised from Rs 17.61 per kg to around Rs 19.04 between 2009-10 and 2011-2012 - which is still much lower than the actual cost of production a factory incurs at Rs 28-30 per kg.

The government bears the cost difference between the levy sugar price and the ex-factory price while the mills have to suffer losses, resulting from the difference between the cost of production and ex-factory price, which amounts to Rs 2,500-3,000 crore a year. The ex-factory price is calculated on the basis of fair and remunerative price (FRP), which stands at Rs 145 per quintal for the current season.

The Economic Times, 10 September, 2012, http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/food-ministry-comes-with-two-plans-to-fix-retail-price-of-sugar/articleshow/1633129


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