Sugar stocks up on uniform price reports

Sugar stocks rose up to 9 per cent on Tuesday amid rumours that the government was considering uniform cane price for the entire country. The decision, if granted, will take away the power from states to fix the state advised price (SAP) which differs for each state.

According to Vivek Saraogi, Managing Director of Kolkata-based Balrapur Chini and vice-president of Indian Sugar Manufacturers’ Association (ISMA), the industry had urged the Union agriculture ministry to fix market-driven prices so that mills could pay uniformly to cane farmers across the country. Uniform cane price will also enable mills to produce sugar at uniform cost and make possible “one” retail price of the sweetener throughout the country. A source close to the development said there was a positive movement in that direction. However, no concrete decision has been taken so far.

Sugar industry has been suffering for the last two years due to over production in 2007-08 and output deficiency in 2008-09. But, both the central and the state government continued to raise the statutory minimum price (SMP) and the SAP, respectively. In June, the government raised SMP from Rs 81.18 to Rs 107.76 a quintal while SAP was raised to Rs 145 a quintal last season.

On top of that, lower cane output last year forced mills to pay premium on cane supplies which made sugar production costlier. These appreciations in cane price worsened mills margins, thereby, making the crushing difficult during the last season. In 2007-08, India produced 28 million tonnes followed by 14.7 million tonnes in the next year against overall consumption of 23 million tonnes. Last year, sugar price shrank to Rs 14-15 a kg which mills claimed was Rs 2-3 below the cost of production. During the year, the prices hit Rs 35 a kg, which invited government’s intervention by imposing stock limits and withdrawal of the commodity from futures trading platforms.

In order to avoid this mismatch, industry bodies including ISMA, recommended the government to fix a market determined price of cane which will vary depending upon the production, yield, supply-demand scenario etc, and also defy state’s control on cane farmers.This, if decided, will be a good move by the government and a win-win situation for both, farmers and mills, said G S C Rao, president of The Sugar Technologists’ Association of India.

The formula would be more like minimum support price (MSP) for agricultural commodities, where final decision will be taken by the board, proposed to have equal representation from the government and the industry. The price should be fair and remunerative helping better realisation for the industry with a combination of fixes and variables, said B J Maheshwari, wholetime director and company secretary, Dwarikesh Sugar Industries.