Food price inflation has already painted our agriculture minister Sharad Pawar in a corner. As if that is not enough, his own party NCP mouthpiece Rashtravadi has now become a cause of embarrassment for him as it thought it wise to proffer the unsolicited advice to the masses to avoid using sugar to negotiate the short supply and high prices of the commodity.
Instead of suggesting steps that may help in bringing down sugar prices, a cause of concern for the beleaguered government, Rashtravadi in a patronising tone says, “No one dies due to not eating sugar. And why is sugar considered an essential commodity?” Pawar, who recently caused distress to its dominant UPA partner by saying that he alone was not responsible for food price rises since the cabinet, including the prime minister is involved in decision making, has not lost any time in distancing himself from Rashtravadi outpourings.
Whatever Pawar may say about the editor taking liberty, the fact remains that NCP is like his fief and everyone in the party is supposed to know his mind. Moreover, the world is aware of the minister’s mastery over sugar than any other farm commodity. Let this, however, be said at the outset that for sugar at least Pawar is not in any way responsible for the steep rise in prices till December – globally sugar peaked a 28-year high at that point. Prices since then have fallen caught as it is in general commodity liquidation.
The simple answer as to why sugar became so very expensive is to be found in big supply shortfall both here and globally for three consecutive seasons. According to Narendra Murkumbi, managing director of Shree Renuka Sugar, domestic supply in the current season to end in September will fall short of demand by about 7 million tonnes to be made good by imports.
Murkumbi said at a recent conference in Dubai that “We had opening stocks of imported raw sugar of nearly 1.5 million tonnes and that leaves total buying of 5.5 million tonnes to be done this season.” But since factories, particularly in Uttar Pradesh have started closing down in rapid succession after low crushing capacity use and late start because of unconscionable time taken to settle cane prices, the final production tally is unlikely to be very much more than last year’s disastrously low 14.6 million tonnes, says Om Dhanuka, former president of Indian Sugar Mills Association. In that case, shortfall would be higher than 7 million tonnes.
The industry spread countrywide is having an average cost of production of Rs 3,095 a quintal this season on the basis of cane price of Rs 250 a quintal, sugar recovery rate of 10 per cent and after taking credit of Rs 120 a quintal on realisation from byproducts. After rolling in losses for three seasons in a row, the factories have moved in the black in the December ended quarter. It would have done the sugar economy a lot of good had not a panicked government asked the industry to part with 20 per cent of production as levy sugar at prices remaining unchanged since 2003-04. Incidentally, sugar is the only farm commodity where the subsidy burden is on the producer and not government.
There are no two opinions that the major portion of levy sugar finds its way into the open market brazenly making a mockery of the system. Below the poverty line people are keen to get rice, wheat and pulses at subsidised rates and not sugar. Dhanuka says imported white sugar or raws on being refined white is free from levy obligation. In disposal also, imported sugar enjoys advantages over the locally made sugar, which continues to be subject to monthly release mechanism. No doubt, open market prices would have behaved better had the factories been allowed the freedom to sell sugar and the government bought sugar from the market for BPL distribution.
Major domestic production setback for two seasons in a row making us highly import dependent plus success of growers in securing very high cane prices have created the ground for some sharp sugar price spikes. March contracts for whites at Liffe are quoting at around $740 a tonne and for raws at ICE at 28 cents a pound. Prices have come down from their peak because of dollar rally and for falls in equity value. Sugar consultancy Kingsman SA, however, says the “Fundamentals still look positive as import demand remains greater than exports.”
For the next few months, the market underpinnings will remain bullish as India, China, Indonesia, Pakistan, Egypt and Russia will all be importing sugar to douse domestic inflation. The global supply shortfall this time is around 13.5 million tonnes. Next season, however, the world should have a surplus of about 4 million tonnes, thanks to expected bumper production in Brazil and China.