FRONT PAGE | Sunday, November 22, 2009 | Email | Print | 
Sugar set to taste bitter
Navin Upadhyay | New Delhi
Demand-supply gap, pressure on mills’ margin, hike in sugarcane cost to keep prices climbing in coming months
For over a year, sugar mills have reaped a rich bounty, exploiting fall in sugarcane production by hiking prices through market manipulation and inventory build-up - a time-tested mechanism to fleece consumer even before the crisis has hit home. Sugar became ‘bitter’ last year even at the beginning of the sugar cycle, and consumer wondered how prices could react so sharply even when the actual fall in production was still notional.
The country has witnessed the same phenomena in other cases too: prices of pulses and edible oils went up just on the prognosis of future production downfall. The fact remains that demand and supply gap of sugar is all set to remain unabridged both domestically and internationally in the next year too. In addition, the mills will face pressure on their margin because the Government has doubled the levy quota from 10 per cent to 20 per cent from October 1 this year. The inevitability of paying over Rs 200 per quintal to sugarcane farmers will further bring the mills’ margin under squeeze. Experts feel that the combination of these factors will keep the sugar prices climbing up in the coming months too.
“Sugar prices are set to move upward,” says SL Jain, former Director General of Indian Sugar Mills Association. “The mill owners are bound to pass a portion of the increased cost of levy sugar and hiked sugarcane prices to consumers,” he added.
Jain saw no justification in doubling up the levy quota from 10 to 20 per cent. “This will take away that much sugar from the open market, besides forcing the mills to increase the price,” he said, adding. “The Government seems to be bothered only to meet its obligation to the people below poverty line. The rest may have to pay through the nose.”
The case for high sugar prices remains strong. With farmers all set to extract their pound of ‘sweetener’ from the mills, experts believe the existing profit margin of the mills could come down by as much as Rs 3 per kg. The mills will suffer a double whammy if the Government did not concede their demand to hike the price of levy sugar. The sugar mills have asked the Government to fix the levy sugar price at Rs 20 per kg from Rs 13, which has not been revised for nearly a decade. The buzz in the Agriculture Ministry is that the Government is unlikely to oblige the mill owners and could fix the price at around Rs 15 per kg. This could cut in the mills’ profit by as much as Rs 4 a kg. Though mills will still make substantial profit on realisation from molasses, but used as they are to higher profits, they are unlikely to bring down prices.
“We don’t see any hope of sugar prices going down. The dispute with the farmers has not been resolved and the crushing has yet to take off in Uttar Pradesh, Tamil Nadu and Andhra Pradesh,” says KP Reddy, convener of National Sugarcane Commodity Council.
Reddy says that taking back the order on Fair and Remunerative Price is no solution to protect the interests of the farmers. “We feel that the Centre and the States should work together to fix sugarcane price that is based on market, input cost and prevailing production situation, and protect the interests of sugarcane farmers in totality. This should be done in accordance with Sugarcane Order of 1966,” he said.
At the same time, Reddy, who represents the sugarcane farmers’ organisations, also trashes the Government’s move to increase the levy quota. “Asking the mills to set aside 20 per cent for levy sugar is absurd. This would force the mills to keep the sugar prices on higher side and ultimately hurt consumers,” he said.
Incidentally, though the Government claims that increased levy sugar is needed to meet the PDS demand, Reddy claimed that only three per cent sugar is distributed through the fair price shops, and as much as 90 per cent is consumed by sweet meat producers, bakeries, cold drinks, and medicinal and pharmaceutical industries. Only seven per cent sugar goes to common consumers for daily use.
“The Government’s move to increase the levy quantity is aimed at helping big companies involved in these sectors. The consumers will have to bear the burden because the mills will pass the cost on to the common man,” Reddy said.
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