The Hindu Business Line : Open market sugar prices dip below PDS rates

Price woes
In Uttar Pradesh, ex-factory prices have dropped from their June 2006 (pre-export ban) levels of Rs 1,850 to around Rs 1,380 per quintal.
In Tamil Nadu, the decline has been from Rs 1,800 to Rs 1,400 per quintal.

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New Delhi Feb. 8 Having first pleased consumers by banning export of sugar, the Centre is now apparently swinging to the side of producers.

This comes at a time when Uttar Pradesh — the country's No. 1 cane and sugar producer — is headed for Assembly polls in the next couple of months, and when in Maharashtra, the Agriculture Minister, Mr Sharad Pawar's State, factories are now realising less from the sugar they are selling in the open market than on what they are delivering as `levy' to ration shops.

The Food Ministry, as per reports, has already circulated a note proposing the creation of a 20-lakh tonne (lt) sugar buffer to bail out the ailing industry. The buffer would basically transfer the cost of interest, storage and insurance payable on the total sequestered quantity (20 lt) from the sugar mills to the Union Government's account.

The proposed buffer, which would be allocated among mills on a pro-rata basis linked to the stocks individually held by them, is to be created for a one-year period. During this period, the sequestered sugar would remain in factory godowns, with the carrying cost to be borne by the exchequer.

The last time that a similar 20-lt, one-year buffer was created on December 18, 2002, it was extended for an additional year till December 17, 2004. The total outgo for the Centre, then, came to over Rs 760 crore. "The proposal now is for Rs 400 crore. It remains to be seen whether the Finance Ministry and ultimately the Cabinet will approve it," sources said.

In Uttar Pradesh, ex-factory prices have dropped from their June 2006 (pre-export ban) levels of Rs 1,850 to around Rs 1,380 per quintal. The last two days alone have seen a crash of Rs 170 or so. In Tamil Nadu, the decline has been from Rs 1,800 to Rs 1,400 per quintal, as buyers have virtually deserted the market and are backing out of previous deals.

But the worst is in Maharashtra, where mills are currently getting Rs 1,285-90 per quintal on the sugar they are selling in the open market. This is lower than the Rs 1,338 per quintal being realised on the 10 per cent of sugar produce they are obliged to surrender as levy for the public distribution system (PDS). "We are in a strange situation, where the PDS is subsidising the market," sources pointed out.

Whether or not the buffer proposal goes through, there is no doubt that in the coming days the Centre will be under tremendous pressure to intervene: this time on behalf of the industry and growers, who form an important political constituency in Uttar Pradesh and Maharashtra.

Every one-rupee fall in sugar prices makes an average middle-class family that consumes, say five kg a month, richer by Rs 60 for a whole year. But for a typical one-hectare farmer of Uttar Pradesh, who sells 50 tonnes of cane to mills, every rupee dip translates into an annual income loss of Rs 5,000, assuming a 10 per cent sugar recovery figure.