Harish Damodaran
Sindhu J. Bhattacharya

New Delhi, Jan. 2

EVEN as cola majors, mithai makers, ice-cream manufacturers and other bulk consumers are crying foul over spiralling sugar prices, the domestic sugar industry has blamed speculators, who, they say, are making a killing on account of the Government's conservative free-sale quota (FSQ) release policy.

Since December 1, spot prices of S-30 grade sugar at Mumbai's Vashi market have soared to Rs 19.25 from Rs 16.20 per kg, while the same for M-30 grade at Muzaffarnagar have shot up to Rs 19.44 from Rs 16.13 per kg. An indication of where prices are headed for in the coming months is provided by the futures quotes for M-30 (Muzaffarnagar delivery) at Rs 20.10 per kg for March and Rs 20.26 per kg for April.

But according to Mr S.L. Jain, Director-General of the Indian Sugar Mills Association, the recent spurt in prices, particularly in the last few days, has been mainly on account of the Government's announcement of a lower FSQ during the January-March quarter.

The FSQ for January-March quarter has been fixed at only 34 lakh tonnes (lt), which is 5 lt lower than that released during October-December 2004 and also the 34.05 lt for January-March 2004.

Mr Jain said that the sugar industry "decries" the recent price spurt, which, he claimed, was against the interests of all stakeholders.

He urged the Government to announce a higher FSQ for the current quarter, which will help enhance domestic availability and also curb undesirable speculative activity. Mr Jain felt that the optimal price now, taking into account the actual supply and demand position for sugar, would be in the region of Rs 17-17.50 per kg.

The mills contend that the speculators are physically lifting sugar from them and not putting it in the market. As a result, there has been a large build-up of stocks in the pipeline.

Currently, of the 180-lt estimated annual domestic consumption of sugar, roughly 55 per cent is accounted for by local sweetmeat makers while another 20 per cent is used by the organised industry comprising manufacturers of soft drinks, ice-creams, biscuits, chocolates and confectionery. It is only the remaining 25 per cent that is consumed directly by retail households.

Considering that a typical household of four members would consume 3-4 kg of sugar every month, even a Rs 3 per kg rise in prices constitutes an extra expenditure of only Rs 9-12. But, on the other hand, for bulk consumers, the recent increase in prices would prove quite a handful, as sugar to them is like what steel is to the automobile manufacturers.

Nestle India consumes almost 35,000 tonnes and every rupee hike in sugar prices means incurring additional costs of Rs 3.5 crore. Thus, the company would have little choice but to pass on the higher cost to consumers.

(This article was published in the Business Line print edition dated January 3, 2005)
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