Cane shortage may push up sugar prices 5-7%

Domestic sugar prices are likely to rise by 5-7 per cent in the next few months due to high cane costs and firm international prices amid reduced supplies, Indian Sugar Mills Association President Chandra Sekhar Nopany said.

He also sees increase in export opportunities as domestic prices are lower than prevailing world prices.

"This year (October-September) cane prices have risen up to Rs 150 per tonne from Rs 107 and notionally this will have an impact on sugar prices. So 5-7 per cent rise in sugar prices is likely in the next few months," Nopany said.

The March contract of S-grade sugar on the National Commodity & Derivatives Exchange was Thursday traded at Rs 1,981 per 100 kilogram, while the April contract was at Rs 2,069. May futures were traded at Rs 2,079.

Nopany said the association has recently informed Union Agriculture Minister Sharad Pawar that sugar prices have risen neither due to domestic market forces nor because that mills are selling less sugar. This is due to upward pressure from international markets.

Nopany said the current trend is evidence of a long overdue correction. "Sugar prices had gone down to a low of Rs 1,100 a tonne 2-3 years ago from a high of Rs 1,600 six-seven years ago and correction is happening now," he said.

He said the entire industry is undergoing metamorphosis after Australia, Brazil and Thailand filed suit against the European Union for subsidising sugar.

Because of the subsidy distortion, the EU could dump six to seven million tonne of sugar into the world market at low prices. Now that the subsidy has been withdrawn, prices are up amid lower supplies, Nopany said.

"This (EU sugar subsidy withdrawal) had led to bullishness in sugar prices, which increased to 17 cents a pound, and for the first time Indian prices are lower than the world prices thereby opening immense export opportunity," he said.

Further, as farmers are getting better margins this year after the spurt in cane prices, Nopany anticipates that they will opt for increasing cane acreage in 2006-07 (October-September).

"Clearance of all dues by mills to sugar cane farmers might also encourage them to go for increased cane farming," he said.

Nopany expects sugar production in 2006-07 to increase to 20 million tonne from an estimated 18 million tonne in 2005-06.

Sugar not banks' priority

The government has decided that the sugar industry will not be classified under priority sector lending by commercial banks, Pawan Kumar Bansal, minister of state for finance, said in Lok Sabha on Friday.

Asked whether the sector is eligible for priority sector lending as it is an agriculture-based industry, Bansal said: "It is felt that the sugar industry, being of a large size, requires loans of substantial amounts. Thus, bank credits to other segments of priority sector, particularly small borrowers, may be affected."

Bansal said the decision to not include the sugar industry under priority sector lending was taken in consultation with the Reserve Bank of India.