The Hindu Business Line : Sugar buffer, export sops fail to lift sentiment

New Delhi May 2 When on March 24, the Union Cabinet approved the creation of a 20 lakh tonne (lt) sugar buffer along with the grant of export subsidy of Rs 135-145 per quintal, there was some optimism that the worst was over for the industry.

But these hopes have simply vanished. Since the announcement of the revival package - timed before Assembly elections in Uttar Pradesh - sugar prices have only fallen further.

On March 22, ex-factory prices in UP ranged between Rs 1,446 and Rs 1,454 per quintal. They are now ruling at Rs 1,290-1,325 per quintal. Over the same period, domestic realisations to Maharashtra mills have declined from Rs 1,360 to Rs 1,205 for S-30 sugar and from Rs 1,380 to Rs 1,247 for M-30 sugar.

Ex-factory price

Likewise, mills in Maharashtra were offering sugar for exports at Rs 1,300 per quintal before the incentive package was announced. Now, ex-factory rates for exports have collapsed to around Rs 1,000 per quintal. According to a Tamil Nadu miller, "we contracted in the first week of April for $308 per tonne free-on-board (f.o.b.), but today we are getting quotes for $280".

Global players gain

Simply put, neither the buffer nor export sops have helped lift sentiments. On the contrary, the export subsidies have only emboldened millers to quote lower prices in a bid to dispose of their piled-up inventories at any cost.

"If to the Centre's subsidy of Rs 1,350 per quintal, you include the Rs 1,000 additional subsidy offered by the Maharashtra Government and the two per cent benefit under the duty entitlement passbook scheme, it adds up to over $60 per tonne. The ultimate gainer from this have not been the mills but the big global buyers who have forced a reduction in our export prices," the miller added.

Similarly, with respect to the buffer, the idea was to help mills access additional credit on the 20 lt sequestered quantity (on which the Centre bears the interest, storage and insurance costs) and use this to pay the cane farmers.

"The outgo for the Centre on this count is Rs 380 crore, whereas the total cane payments in the 2006-07 season (October-September) would be over Rs 30,000 crore. Neither has the buffer boosted price sentiments because that can happen only if the Government actually undertakes direct purchases. Indirect intervention measures have little meaning in the current context," a UP miller noted.

Factory, State-wise buffer allocations

The Food Ministry has made a factory-wise and State-wise allocation of the 20 lt sugar buffer to be maintained for a one-year-period from May 1, 2007 to April 30, 2008.

The highest allocation has gone to Bajaj Hindusthan (88,360.9 tonnes, including its subsidiaries and managed mills), followed by Balrampur Chini (55,363.9 tonnes), KK Birla Group (41,576.5 tonnes), Triveni Engineering (36,005.3 tonnes), Dhampur Sugar Group (28,767.8 tonnes), Thiru Arooran Group (22,558.7 tonnes) and Mawana Sugars (22,109.1 tonnes). Among States, Maharashtra has cornered 7.03 lt, followed by UP (5.40 lt), Karnataka (1.92 lt), Tamil Nadu (1.47 lt) and Andhra Pradesh (1.17 lt).

"In deciding the buffer allocations, we have given 25 per cent weightage to stocks as on September 30, 2006 and 75 per cent for production in the current season till February 28," an official explained.