Agriculture Minister Sharad Pawar today said it will be difficult to decontrol sugar industry as many state

governments, including the country's second largest producer Uttar Pradesh, are against freeing this
sector.

"We have discussed (the issue of sugar decontrol) with states. Unfortunately, many states are not
ready," Pawar said in his first media interaction after he was relieved from the Consumer Affairs, Food
and Public Distribution ministry that oversees sugar sector.

Prime Minister Manmohan Singh in September 2010 had asked the Food Ministry to consult states
before decontrolling the sugar sector. The ministry had then proposed doing away with controls like
monthly sugar quota that mills can sell in the open market and through ration shops.

"States like Uttar Pradesh, Punjab and Karnataka are not ready for decontrol of the sugar industry, while
Gujarat and Maharashtra have expressed their willingness.

If only three-four states accept, it is difficult to implement. And Prime Minister had always told that for
this kind of policy, states should be taken into the confidence," he pointed out.

When asked if the government will put the proposal of decontrolling the sector on the backburner,
Pawar said, "you can't say for now. If there is more production and prices come down, they (states) may
rethink and accept (it) also".

In August 2010, Pawar had said that the time had come to decontrol the sector, as sugar production in
2010-11 season was expected to be higher than the annual domestic demand and prices had softened
from nearly Rs 50 a kg in January 2010.

At present, the sugar industry is under government control, right from the level of production to
distribution.

Besides, a fixed monthly sales quota for sugar mills, the factories are required to sell 10 per cent of their
output to the government at cheaper rates for supply to consumers via ration shops.

However, the ministry has held that it would continue to fix the fair and remunerative price (FRP) of
sugarcane, which is the minimum rate that mills are required to pay to farmers.

Sugar production of India, the world's second largest producer and biggest consumer, is estimated to
rise to 24.5 million tonnes in 2010-11 (October-September) from 19 million tonnes in the previous year.

The domestic demand is pegged at 23 million tonnes, out of which about 60 per cent is used by bulk
consumers such as sweetmakers and soft-drink manufacturers.
 SWEET SEASON AHEAD

With global prices of sugar firming up, the outlook on the entire sector has vastly changed,
putting India in an advantageous position. Raw sugar prices have moved above 28 cents per
pound and white sugar, above US $ 708 per MT. With drought in Brazil and floods in Pakistan,
the global supply is expected to remain lower. With demand picking up from Russia, China,
Pakistan, Sri Lanka and other neighboring countries and with surplus production expected in the
country in season 2010-11, India will be able to take advantage of this, by exporting sugar to its
neighboring countries.

On import parity price, cost of sugar works out at Rs. 35.50 per kg.in India while it is sold at
Rs.25 per kg. ex-mill in Maharashtra and Tamil Nadu and at Rs.26.50 per kg. ex-mill in U.P.
Even if we take price of sugar ex-London, it works out at Rs. 32 per kg. against average
domestic price of Rs. 26 per kg. So, in due course of time, this gap is likely to get bridged with
domestic prices of sugar likely to move to around Rs. 30 per kg. ex-mill by December- January.
This amounts to an increase of about Rs. 4 per kg., which is seen quite respectable by the
industry.

Going forward, Indian sugar mills are likely to have following advantages: -

1. India’s production for sugar season 10-11 is expected to be about 25 million tons against
estimated domestic consumption of 23 million tons. So, about 1 to 1.5 million tons of sugar can
easily get exported, thus giving a better realization.

2. Levy quota this year is likely to be 10% as against 20% last year. This will result in an extra
realization of about Rs. 2.50 per kg. on the entire quantity of sugar produced by a mill. This is
after considering difference between levy price of Rs.18 per kg. and open market price of Rs. 26
per kg. of sugar.

3. Ethanol price having been fixed at Rs. 27 per litre will also be a good revenue generation for
the mills with expectations of oil marketing companies lifting the entire quantity of ethanol
allotted to them.

4. Sugarcane prices are likely to rule between Rs.180 per quintal to Rs.220 per quintal in U.P.
and Karnataka while Tamil Nadu is likely to have price ruling at around Rs.200 per quintal. This
kind of price will give a conversion margin of about Rs.7 per kg. to the mills, which is seen quite
reasonable.

5. With inventory of sugar depleting at the industrial consumers and traders levels, fresh demand
of sugar is seen coming up, which will remain alive throughout the season.

6. At the farmer levels, realization of Rs. 180 to Rs. 200 per quintal for sugarcane seems quite
good as alternate crops would still fetch much lower price. This is likely to keep better
availability of cane even in the next season of 2011-12.
 7. Sugar mills having integrated operations will have better realization from its by-products -
molasses and bagasse - by processing them into ethanol and power respectively.

Hence, the sector is likely to see all the positives in the season, which will start crushing from the
first week of November in Karnataka and Maharashtra and from middle of November in U.P.
Crushing in this season is likely to last till middle of May due to better availability of sugarcane
in all the states.

In the given situation, preference lies first for the company which has global presence as well. In
this category, only Renuka Sugar falls, having acquired two mills in Brazil, which have its
season running between April to December.

Thereafter, the Karnataka based sugar mills will have advantage because of better recovery of
close to 12%, with cane price expected to remain reasonable at around Rs.220 per quintal.
Renuka Sugar and EID Parry fall in this category.
Thereafter, companies those who are likely to get export entitlements against raw sugar having
imported by them in the past will stand to gain. In this category, Renuka, Sakthi, Ponni,
Dharni and EID Parry get covered.

Thereafter, Tamil Nadu based sugar mills will also be in a better situation and companies to gain
would be EID Parry, Sakthi, Ponni, Dharani, Bannari Aman and Thiru Arooran.

For U.P. mills, it would be better to see the SAP for sugarcane getting announced by the state
government, which is likely by the end of this month, as Panchayat elections in the state are
likely to be completed by 25th October. One can keep an eye on Triveni, Balrampur, Bajaj
Hindustan, Simbhaoli, DCM Shriram Consolidated, Dhampur, DCM Shriram Industries,
Mawana Sugars etc.

So, better days are seen ahead for the sugar sector in India for this entire season.