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Harish Damodaran

Mills given permission to fix their own rates

New Delhi April 27 The Maharashtra sugar industry's experiment with fixing a minimum price for exports is over. With effect from April 25, mills will no longer offer sugar to exporters at the last-declared floor of Rs 1,190 per quintal f.o.r (free-on-rail).

Counterproductive

"We have dispensed with the system of fixing export floor prices on a weekly basis. Factories can now fix their own rates, so long as they are broadly compatible with prevailing London white sugar rates," the State's Sugar Commissioner, Mr Rajagopal Devara, told Business Line.

According to him, fixing minimum export prices was proving counterproductive because mills, in their desperation to offload stocks, were doing little to improve realisations and mostly quoting at the floor.

And the floor price itself was getting successively revised downwards due to pressure from buyers, further reinforcing the bearish market trend.

The Sugar Export Cell under Mr Devara had originally, on March 18, fixed a minimum ex-mill price of Rs 1,300 per quintal on exports. This was, on March 27, revised to Rs 1,320 per quintal on an f.o.r basis (delivery at the nearest railhead point to Jawaharlal Nehru Port Trust, after adjusting for cost of transport from mill to the port, which ranges from Rs 40 to Rs 80 per quintal). The export floor prices were further reduced to Rs 1,275 per quintal f.o.r on April 6 and to Rs 1,190 per quintal f.o.r on April 20.

Subsidy claims

"We will not have any floor from now on. But that does not mean mills can fix any rate they want. At the time of processing export subsidy claims, we will examine whether the concerned mill has entered into a price contract that roughly corresponds to the London price," Mr Devara added. The Maharashtra Government is planning to give an export subsidy of Rs 1,000 per quintal, over and above the Rs 1,350 incentive being offered by the Centre.

One formula being talked about is to link the export price to the prevailing London price. Taking the ruling London white rate of $308 a tonne, mills can quote an f.o.r rate by deducting around $35 per tonne, of which $20 is the discount due to the higher ICUMSA of Indian sugar and $15 on account of fobbing (port-related) charges.

Export contract

The f.o.r rate, then, comes to $273 per tonne or Rs 1,119 per quintal. The ex-mill price would work out about Rs 50 lower at Rs 1,070 per quintal.

"We have not decided on any formula yet," Mr Devara said. Meanwhile, Maharashtra mills have so far contracted exports of 7 lakh tonnes (lt), of which they have shipped out 5 lt, according to Mr Prakash Naiknavare, Managing Director, Maharashtra State Cooperative Sugar Factories' Federation.

In the current 2006-07 season (October-September), the mills have, as on April 24, crushed 713.83 lt of cane and produced 82.67 lt of sugar. This is as against the 441.49 lt crushed and 51.76 lt sugar produced in the corresponding period of the 2006-07 season.

The production glut has led to ex-factory prices falling since April 1 from Rs 1,320 to Rs 1,185 per quintal for S-30 sugar and from Rs 1,350 to Rs 1,200 for M-30 grades.

More Stories on : Sugar | Agricultural Policy | Maharashtra

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