Sour news for commercial bulk sugar users

Govt caps storage time to 10 days, may even ban all use of domestic sugar

In a move which would impact leading companies such as Coca-Cola, Pepsi, Britannia and Cadbury India, among others, the government issued a notification last week directing them to reduce the period for which domestically-sourced sugar may be stocked from 15 days to 10 days.

The move, bulk buyers say, might force them to increase prices, as they would have to import sugar, more expensive than domestic sugar, to maintain their stocks for uninterrupted production.

The 15-day stock order was issued last August, in response to the rising prices of retailed sugar. Earlier, bulk users — defined as companies which use more than 10 quintals or 1,000 kg of sugar as their raw material — could stock the commodity up to 30 days.

The new notification, from the Ministry of Consumer Affairs, Food and Public Distribution on February 5, will become effective from February 20. It will be in force for six months.

The notification will also impact makers of sweets like Haldiram and ice cream makers such as Unilever, among others.

Soft drink manufacturers say the move could force them to increase prices. “Manufacturers might need to import sugar and this news will only fuel international prices upwards, already on an all-time high. We might have no option but to raise our prices,” said a senior executive of a soft drinks company.

An executive of a foods company said forcing them to keep such low stocks made it impossible for them to have any flexibility in production. “It's not that easy to get the kind of high quality sugar that we are looking for. By reducing the number of days even further, it is virtually impossible for us to quickly increase our production in response to increased sales.”

Worse, the government is also looking at banning usage of domestic sugar for bulk users, forcing them to go only for imports. Sources in the ministry told Business Standard it had sought the law ministry's views on the subject.

Bulk consumers account for over 65 per cent of India’s sugar consumption. Data available with the department and the sugar industry show that of the 15 million tonnes that bulk consumers use, sweets account for 45 per cent, soft drinks 30 per cent, ice cream 10 per cent, chocolate 10 per cent and biscuits 5 per cent.

Sugar accounts for 3.72 per cent of the Wholesale Price Index. Prices are rising owing to an acute shortage — production in 2009-10 was just 16 million tonnes against annual consumption of 23 million tonnes. The pressure is unlikely to ease in 2010-11, with production pegged at 21 million tonnes.