Apprehending further government actions and the release of additional sale quota have dragged down sugar prices by over 5 per cent since the last week to Rs 1,700 a quintal (ex-factory). Since mind-July, prices had surged by 25 per cent on cues of a lower output next season (October-September).
On August 9, the government released 500,000 tonnes sugar for sale in the remaining period of the current quarter, in addition to the 4.8 million tonne quarterly quota. On August 13, the food ministry shot notices to 252 sugar mills for not submitting the monthly return on sugar sold from the dismantled 2 million tonne buffer stock. Mills have been asked to submit return on dismantled buffer by August 25.
“Ex-factory realisation has come down by Rs 1 to Rs 17 a kg since last week because of additional quota release. This is the price level required to ensure adequate sugar supplies in the future. Anything below this will deter supplies and in turn drive farmers to other better paying crops,” said Narendra Murkumbi, managing director, Shree Renuka Sugars.
The price of sugar futures for September delivery at the National Commodity and Derivatives Exchange also fell 3.75 per cent since August 11 to Rs 1,789 a quintal.
The 25 per cent surge in prices had induced government action since the commodity has a weight of 3.62 per cent in the wholesale price index (WPI), more than cement (1.73 per cent), wheat (1.38 per cent) and just lower than iron and steel’s combined weight of 3.64 per cent.
The surge in prices would have got reflected in inflation, already at a 16-year high of 12.44 per cent. The surge in inflation has prompted government to take actions against steel and cement companies.
The surge in domestic prices has also prompted sugar mills to stop entering export contract, as domestic realisation is better. “My company has not contracted any export since last sixty days,” Murkumbi said.
Sugar output is projected to fall significantly in the 2008-09 season (October-September). The food ministry has arrived at a provisional production estimate of 22 million tonnes for 2008-09 . The output in the current season is estimated at 26.5 million tonnes.
Along with an estimated carryover of 11 million tonnes from the current season, an output of 22 million tonnes would imply a total availability of 33 million tonnes for the 2008-09 season, as against the consumption demand of 22 million tonnes.
