Govt may intervene to check price fall

The government is likely to intervene if sugar prices continue to fall, a senior government official said today.

The government may offer export subsidies once the exports are liberalised further and may also offer cane price subsidies to stabilise prices and help companies to pay the farmers, the official said.

"Prices have been falling consistently and the outlook going forward remains the same. It is a matter of concern now, the government may have to intervene," the food ministry official said.

He said falling sugar prices could lead to non-payment of cane prices by companies, which would hurt the farmers' interest. Sugar prices in India have been falling consistently and are now over Rs 200 per 100 kg lower than last year's levels.

Experts attribute the fall to a possible glut in the country in wake of a bumper sugar output, at over 23 million tonne, expected in 2006-07 (October-September).

The country produced 19.3 million tonne of the sweetener in 2005-06. In June, wholesale prices in northern India had topped Rs 2,000 per 100 kg, while retail prices had touched a high of Rs 2,500 per 100 kg.

The government had then banned white sugar exports in a bid to check supplies, curb soaring prices and tame inflationary pressure. Prices have since then eased considerably.

Monday, wholesale prices in north India traded between Rs 1,650-1,690, while in Chennai they were still lower between Rs 1,450-1,560 per 100 kg.

"We have lost an opportunity," the official rued, referring to the ban on sugar exports and the recent partial lifting of the ban. He said international prices have also eased from their multi-year highs and companies may not find the export market as lucrative as earlier.

London sugar futures had topped $500 per tn in July. Prices since then have eased. On Friday they closed at $342 per tonne, down $2.10 from the previous close.

"If the government liberalises exports, it may have to offer export subsidies," he said.

The subsidies could be in the form of transport reimbursements and freight assistance.

Government partially lifted the ban on sugar exports on December 18, allowing mills with export obligation to export. Mills with advance licences have an obligation to sell 1 million tonne of sugar.

The government may also consider paying subsidies to sugar companies to enable them to pay the farmers for cane.

Since sugar prices have fallen and the trend is likely to continue, the government may offer subsidies to the companies, the official said.

With wholesale prices slipping under Rs 1,600 per 100 kg, mill prices have declined further and are below Rs 1,500 per 100 kg.

Experts say for sugar companies to pay farmers around Rs 115-120 rupees for every 100 kg of cane, the ex-factory sugar price must be around Rs 1,750-1,800. Uttar Pradesh had revised upwards the cane prices for the current sugar season to Rs 125-130 per 100 kg from Rs 115-120 last year.

The official said low sugar prices, non-payment of cane arrears and falling prices of alternative sweeteners like jaggery may discourage farmers from growing cane in the coming seasons.

"That could lead to fall in sugar output," the official said.

According to the latest government reports, as of October 15, sugarcane farmers have received Rs 20686 crore against Rs 20751 crore payable for the 2005-06 season.

The cane arrears, thus, were at a historic low of 0.32 per cent. In addition, Rs 1729 crore were paid out of the arrears for sugar years 2001-04.

The payments have been possible only because realisations from sugar sale have been robust in the past years, the official said.