Sugar prices firm up after Government imposes stock limits, hikes import duty

Sugar prices have firmed up by nearly 15 per cent in the past one week on the back of the Centre’s move to impose stockholding limit on mills.

The move coupled with the government’s decision to increase the import duty on sugar to 100 per cent from 50 per cent has helped strengthen sugar prices, sources said.

According to OP Dhanuka, CMD, Riga Sugar Company Ltd, and past President of the Indian Sugar Mills Association (ISMA), the ex-mill prices are currently ruling around ₹3,550 a quintal. Sugar prices had declined by more than 25 per cent in the last two months and the ex-mill price was ruling at around ₹3,100 till about a week ago.

Retail prices are likely to inch up to ₹44-45 a kg, up from the current levels of ₹41 a kg.

Sugar prices, which were on a declining trend since the beginning of the marketing year on October 1, started firming up with the government asking sugar mills to offload only 17 per cent of their January stocks by February end and another 17 per cent of February stocks by the end of March.

This apart, the government has also increased import duty on sugar to 100 per cent from 50 per cent.

“The government’s move of limiting the release of sugar by mills in the market has helped strengthen prices. This is valid currently only till March, the government should extend it to the whole year,” Dhanuka told newspersons at a select media interaction here on Wednesday.

According to Abinash Verma, Director-General of ISMA, Maharashtra government is likely to buy around 20-22 lakh tonnes from sugar mills this year. Coupled with hike in import duty and permitting limited release of sugar by mills, this proposed move could help keep prices firm.

Bumper production

“All these measures have come at a time when mills have to pay cane farmers, we need to see how it works,” he said.

ISMA estimates say as on January 16, 2018, the country is likely to witness record bumper production of close to 261 lt. ISMA will revisit the production estimate again on March 7.

The industry and trade is anticipating sugar production to be close to 270 lt in the current sugar season (2017-18). The anticipated production in 2018-19 is expected to be close to 300 lt, Dhanuka said.

Cane price arrears

While record production exerted pressure on prices, mills were also seen aggressively selling sugar to pay cane prices to farmers. Cane price has increased by nearly 11 per cent and mills are required to pay farmers within two weeks of harvest.

Assuming that the sugar mills crush 260 lt of sugarcane during 2017-18 and the all-India average cane price is pegged at ₹303/quintal, sugar mills would pay close to ₹79,000 crore to the cane farmers — the highest ever cane price payable to farmers.

Comparing the current scenario to that in 2014-15, Dhanuka said, the country produced 283 lt of sugar in FY’15 and total cane price payable was about ₹66,000 crore. However, since sugar prices were much below costs, cane prices dues, which were at ₹11,333 crore as on January 2015, reached a record ₹20,100 crore as on March 2015.

According to Dhanuka, cane price arrears have increased to ₹11,269 crore as on January 15, 2018, compared with ₹9,526 crore as on March 2017.

“Sugarcane price arrears, which touched ₹20,000 crore in March 2015, reduced in subsequent years due to better realisation. But in the current scenario, we are not far when the cane dues will start accumulating due to impending losses of industry,” he pointed out.

Prices should ideally hover around ₹3,900 a quintal for it to be viable for cane farmers as well as sugar mills, he pointed out.

Dhanuka also stressed on the need for creation of buffer stock of around 20 lt to stabilise sugar price and compensate sugar factory for maintenance of a huge inventory.

Given that the annual domestic consumption of sugar is close to 245 lt, the government should also look at providing export subsidy in cane price to boost consumption.

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