The Productivity Commission has called for the body that markets most of Australia's raw sugar exports to lose a lucrative tax break and face greater competition, as debate rages about re-regulation of the sector.
QSL works on behalf of seven Queensland milling companies and their canegrower suppliers, generating revenues of around $1.5 billion a year from 3.5 million tonnes of raw sugar.
The commission said in a landmark review of agricultural regulation in Australia, released on Tuesday, the Queensland government should repeal recent laws which re-regulated the sugar industry.
It also said the federal government should exclude agricultural commodity trading companies from being granted charity status, which brought with it tax concessions.
QSL was granted charity status in late 2015, with its charitable purpose to "promote the development of the Australian sugar industry" and support its "long term prosperity and sustainability" for the benefit of the general community in Australia.
This is despite QSL's main activity being the export raw sugar for the benefit of mills and cane farmers.
The commission estimated since 1990 almost $2 billion in tax breaks had been provided to the industry.
"Charity status also reduces the transparency of QSL's financial performance, and is likely to further impede structural adjustment in the sugar industry," the report said.
Taking aim at the Newman government legislation from 2015, the commission said it restricted competition and reduced productivity.
"The regulation restricts the marketing choices of sugar millers when they should have the property rights over the sugar that they crush. There is no market failure to justify the re-regulation."
Improving competition in the sector would serve the interests of consumers by "lowering the cost, and improving the quality, of food".
The recommendation comes as QSL and miller Wilmar negotiate a new on-supply agreement and the government holds fire on a proposed code of conduct, which would effectively re-regulate the sugar industry.
Wilmar and QSL have been unable to reach a new agreement to determine mill access and sugar prices, leaving about 1500 farmers unable to crush their cane before the 2017 season.
Deputy Prime Minister Barnaby Joyce said the code of conduct remained an option.
"We've always kept a code of conduct up our sleeve and I think it will be pretty imminent we can drop it on the table," he told ABC radio on Tuesday.