Govt may release sugar to combat price spiral

Mulls options as retail price rises 28% in a year

The government is considering several measures to contain the speculation-driven rise in sugar prices.

These include release of additional free sale sugar quota for the factories; conversion of unsold free sale quota sugar into levy sugar; and more incentives for the import of raw sugar.

If speculative tendencies are not curbed by such measures, the government may suggest to the National Commodity & Derivatives Exchange (NCDEX), which operates futures trading in sugar, to either further raise margins or ask for cash transactions, according to food ministry sources.

The final decision on these measures is likely to be taken tomorrow by Food Minister Sharad Pawar after consulting Prime Minister Manmohan Singh.

These measures will be enforced only if the price rise continues unabated. In case, the trend is reversed, such steps may not be necessary, food ministry officials pointed out. Today, the wholesale prices in the Delhi market fell by about Rs 25 a quintal in anticipation of a government crackdown.

The retail prices of sugar have risen in the past one year by nearly 28.8 per cent in Delhi, from Rs 14.75 a kg on December 31, 2003, to over Rs 19 a kg on December 31, 2004. The increase in the Chennai market has been even higher at 29.6 per cent, from Rs 13.50 a kg to Rs 17.50 during this period.

The Mumbai market witnessed an increase of 19.4 per cent (from Rs 15.50 to Rs 18.50) and the Kolkata market about 12.5 per cent (from Rs 16 to Rs 18).

However, the bulk of the price increase has taken place in the past few days. According to cooperative sugar mills federation official Vinay Kumar, the speculators operating in the futures market are largely responsible for pushing up prices.

International prices too have risen in recent months. "There is no constraint on supplies in the domestic market," he told Business Standard.

According to sugar traders, prices registered a marginal drop today following the anticipated government action. The NCDEX's move to raise the margin from 6 per cent earlier to 8.1 per cent is also believed to have helped in curbing speculation in the futures market. The food ministry sources pointed out that the margin could even be stepped up to around 14-15 per cent, if required.

Officials said the government expected the sugar factories to sell their entire free-sale quota of 3.4 million tonnes for the January-March quarter.

In the case of raw sugar imports, the government is considering extending the time allowed for its re-export after processing from the 24 months currently to 36 months or so. This will augment domestic supplies in the shorter run.

Both the cooperative sugar federation and the food ministry firmly believe there would be no shortage of sugar in the domestic market despite an anticipated drop in production because of a weaker sugarcane crop this year.

The sugar season began with an opening stock of between eight and 8.7 million tonnes. With an expected production of between 12 and 12.5 million tonnes and raw sugar import of around two million tonnes, the total supplies would be more than adequate to meet the assessed demand of around 18 million tonnes.