The Hindu Business Line : More free sale quota sugar to calm rising prices

Bitter pill
FSQ sugar of 30 lakh tonnes to factories for July-Sept, as against 36 lt for the year-ago period
Buffer stock instalments of 20 lt and 30 lt also dismantled

Harish Damodaran

Advertisement

New Delhi, July 16 Worried about firming sugar prices, the Centre is planning to make additional free sale quota (FSQ) releases in order to calm down “uncalled for speculative pressures” in the commodity.

For the July-September quarter, the Centre had allocated 30 lakh tonnes (lt) of FSQ sugar to factories, as against 36 lt for the corresponding three months of 2007.

Dismantling stocks

Simultaneously, it had dismantled two buffer stock instalments of 20 lt and 30 lt, following their expiry on May 1 and August 1, respectively. Mills were allowed to freely sell the first de-buffered instalment at any time between May 1 and September 30 and 25 per cent of the second one of 30 lt any time from August 1 to September 30, without requiring specific release orders from the Directorate of Sugar.

“In all, this would translate into a total market availability of about 48 lt for this quarter or a third more than the 36 lt for July-September 2007. But on the contrary, traders have sought to talk up the market by emphasising just the lower FSQ without accounting for the additional release of the de-buffered quantities,” a senior Food Ministry official noted. Given that the “right message” has not percolated to the market, “we have decided to announce extra FSQ releases for August and September”. It will be done within the “next couple of days”, the official told Business Line.

‘Submit details’

In fact, with regard to the dismantled buffer stocks, the Ministry has already issued an order directing mills to submit month-wise returns of the de-buffered sugar sold by them. Details of the quantity of sugar sold out of the dismantled buffer during May and June will have to be given by July 31, while the same vis-À-vis July, August and September are to be furnished before the 10th day of the following month, according to the order issued on Tuesday.

“The fact that we have permitted mills to freely dispose of the de-buffered sugar does not mean they can hide their stocks position. Every tonne of sugar leaving the factory and every tonne held back in their godown would have to be accounted for and will act as a psychological deterrent against hoarding,” the official added.

Moving up

Since the start of this month, ex-factory prices of S-30 sugar have moved up from Rs 1,450 to Rs 1,550 a quintal in Uttar Pradesh, while rising from Rs 1,310-1,325 to Rs 1,385-1,400 a quintal in Maharashtra and from Rs 1,360-1,390 to Rs 1,410-1,440 a quintal in Tamil Nadu. M-30 sugar in Uttar Pradesh has similarly gained from Rs 1,430-1,470 to Rs 1,540-1,600 a quintal.

The spike in future prices has been even more pronounced: Since June 30, the December 2008 contract for M-30 sugar (Kolhapur delivery) has shot up from Rs 1,615 to 1,829 a quintal. “We are closely monitoring future prices, which have shown unusual volatility and seem to be, in turn, influencing spot rates,” the official said.

The Centre is equally concerned about spiralling global prices. London white sugar (August 2008 contract) is now quoting at $408 a tonne, up from $384 on July 1 and $320 on June 1. This, alongside a weakening rupee, has made exports relatively attractive.

During the current 2007-08 season (October-September) till June, 35.31 lt have been shipped out of the country, including 13.07 lt of white sugar and 22.24 lt of raws. “We have already decided to withdraw all export subsidies from October 1 and may even consider doing so earlier,” the official added.

Mills in coastal States are entitled to an export incentive of Rs 1,350 a tonne, those in Uttar Pradesh and other hinterland areas are entitled to Rs 1,450 a tonne.