G. Chandrashekhar

Mumbai, Feb. 27

"Availability and prices of sugar in the current season (2005-06) are expected to remain at reasonable levels," according to the Economic Survey which says sugar production during 2005-06 is expected to be 17.5 million tonnes (mt), up from around 14.0 mt in the previous two years.

What this "reasonable level of prices" is has not been specified. It should remain a matter of conjecture for all stakeholders, especially consumers.

Admittedly, sugar group has a 3.93 per cent weightage in the wholesale price index. At the wholesale level, sugar trades in excess of Rs 2,000 a quintal and at the retail level at over Rs 22 a kg.

But the Union Government's pious expectation of reasonable prices and availability may hide more than it reveals. There are valid reservations about its expectation. For one, the survey concedes that as per the first advance estimates of the Department of Agriculture and Cooperation, sugarcane production is expected to be 257.7 mt in 2005-06 - an increase of 10.9 per cent from 232.3 mt in 2004-05.

By no stretch of imagination can an increase of a mere 25 mt of cane result in an increase of sugar production by 3.5 mt.

However, according to the second advance estimates (not mentioned in the Economic Survey), sugarcane output in 2005-06 would be 266.9 . It is unclear which States have contributed to higher production.

Since the season beginning, the industry has been harping on higher production of sugar 18.0-18.5 mt for 2005-06. Now, by the Centre's own admission, it could at best be 17.5 mt.

Even this number is of doubtful authenticity.

Given the demand-supply fundamentals, tightening supplies and rising demand, strong international prices, pressure on raw sugar importers to meet export obligation and the role of speculators in the futures market, it should come as no surprise if the domestic sugar market starts to firm up once crushing slows down from March onwards.

Sugar can potentially rise to a level of Rs 2,300-2,400 a quintal by April/May.

(This article was published in the Business Line print edition dated February 28, 2006)
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