Sugar prices see unusual rise but millers plead for pause on curbs

Increasing prices, millers note, enable them to cover more of their production cost nd also clear sugarcane payment dues to farmers

After months of a glut, the government will impose curbs to control an unusual rise in sugar prices over recent weeks.

Export incentives, meant to push up domestic prices and wean away the surplus, are being gradually withdrawn. There is also a move to ease restrictions on import.

The Centre says prices in the retail markets of Delhi, Chennai and some other cities have risen by Rs 4-5 a kg in recent weeks, despite adequate supply. At the beginning of the 2015-16 sugar season, in October, prices were near Rs 31 a kg.

Futures prices for May, July and October in the National Commodity and Derivatives Index predict a larger than expected rise.

"In these circumstances and with firm evidence of some players manipulating the market, the Centre is forced to act," a senior food ministry official said.

Supply in the first six months of the 2015-16 season were nearly 600,000 tonnes more than a year before. Millers, while agreeing the the price spike in the past few weeks was unusual, feel a central crackdown is a bit premature.

"What we were producing got stuck somewhere between mills and consumers, which is why prices have started rising. But, to castigate the entire sector for the wrongdoing of a few is not correct," a senior industry official said.

He said around two million tonnes, a month's consumption, was being hoarded by traders and middlemen. "Action against such people is correct but harming the industry or farmers in the process is not right," the official added.

Increasing prices, millers note, enable them to cover more of their production cost and also clear sugarcane payment dues to farmers. The government agrees that total cane payment arrears had come down to Rs 12,160 crore at the start of the season, from a high of 21,500 crore at the start of the 2014-15 one. And, that a big contributor was improved prices, beside central help in helping mills reduce the dues.

Millers said unless the average ex-factory price improved to nearly Rs 36 a kg (in the retail market, this would mean Rs 41-42 for a kg), they'd not recover their cost of production or be able to repay the Rs 10,000 crore of loans the Centre has granted them since 2014.

The average cost of production of sugar in Uttar Pradesh in this season is Rs 34 a kg, they say. It is Rs 32 a kg in Maharashtra and Karnataka, and Rs 34 a kg in Tamil Nadu.