Govt alarmed at rising sugar prices, draws up continegency plan

ISMA warns mills against speculation, wants sales data, stock positions on fortnightly basis

With retail sugar prices at Rs 45 a kg, worried government officials have asked the Indian Sugar Mills Association (Isma) for explanations and warned against any speculating. A warning Isma has passed on to mills, telling them the government “feels the prices are alarming”.

However, Isma has also told the government the fundamentals do support a rise in the price. For, the cost of production averages to Rs 36.5 a kg; it is higher in the north. Hence, Rs 40 a kg in wholesale markets is not alarming.

Mill sources add that Isma is considering ways for its members to be more transparent in providing data, to be able to clearly gauge the situation. At present mills provide output date to Isma every fortnight. Isma might decide to ask for sales and stock positions every two weeks and estimates on the plantation. Sugar cane plantations have three cycles, with crops of different maturities.

The apex body is to meet next week, to review the consumption and production estimates. It has lowered the consumption estimate to 24.8 million tonnes (mt) this season; next week's meet might cut this by another one mt. The government estimate is around 22.5 mt.

Sources who declined to come on record said Isma has assured the government that mills are selling whatever sugar they are producing to recover money to pay loans and to pay farmers. “Cane crushing is expected to end earlier this year, perhaps in a month or two. After that, sugar supply might be less and further price rise is possible. Hence, says sources, the government has prepared an action plan, to be implemented as the situation warrants”.

An option is to ask state agencies like STC and FCI to import. Another is to allow raw sugar but with changed re-export conditions. Currently, raw sugar meant for re-export cannot be diverted to the domestic market during the six months allowed for re-export. That could be relaxed till the next season’s crop, expected to be a bumper one, arrives. The next sugar season begins from October and June-July, when Brazilian sugar arrives in global markets, might also see a scarcity here. Imports might then be allowed.