Sugar prices are on the rise. But there seems to be a design behind it if the pattern of increase is analysed carefully.
The excessive market speculation is one of the ‘causes,’ not the reason, which the government is either unable to prevent or it does not want to check.

Take, for instance, the sugar industry’s estimate of the sweetener for this year. Indian Sugar Mills Association (ISMA) has been scaling down the estimates, almost on a weekly basis, which is never seen in any part of the-world.

Production estimates fall week by week !

A few days after Food Ministry sent a cabinet note proposing duty-free import of refined sugar, top officials of ISMA held a press conference on 23 March, a move seen as pre-empting any duty cut. The officials projected India’s sugar production at 16 million tonnes for 2008-09 season (October-September). Before that, ISMA had predicted the output at 17 million tonnes.
After the announcement by ISMA, sugar prices rose. In next two days, rates in Delhi were flat, but elsewhere they went up by Rs 20 a quintal.

Next on 30 March, an ISMA official told select foreign agencies that sugar production would be 14.5 million tonnes. Asked by PTI Economic Service on the reason behind scaling down the estimate in less than a week, the same official on the same day said: “production would not go beyond 15.1 million tonnes.”

But the market got the message. Even when the Centre announced (on 31 march) an increase of two lakh tonnes of sugar quoto for April, the prices did not fall.

On 1 April, sugar prices rose by Rs 40 a quintal in Delhi’s spot market, despite the higher allocation by the government.
Experts said, sugar price trend is not entirely dependent on demand-supply aspect as since, it is totally controlled by the government.

The sugar industry body, third time on 8 April, scaled down the estimate further to 14.2 million tonnes. The timing of the announcement is important. It has come a day before the regular weekly cabinet meeting. The Cabinet on 9 April, decided to allow refined sugar import at zero duty.

The government allowed PSUs to import 10 lakh tonnes of refined sugar duty-free by 1August and also removed export obligation on import of raw sugar at zero duty.

Prices jump…

‘Sugar rates in the futures market immediately jumped following the latest output estimates. The April contract at NCDEX platform rose to Rs 2202 a quintal on 8 April.

Strangely, despite the sops by the Cabinet, prices did not fall, rather moved northward. But on 17April, wholesale prices marginally fell on the news of additional allocation of six lakh tonnes for April-June quarter. But it was short-lived and it did not impact retail rates which consumers buy from their neigh bourhood stores.

Finally, the Food Ministry was pulled up by the Prime Minister’s office, which wanted it to take pro-active steps in curbing the price rise.

The ministry hurriedly called a press conference on 20April to reiterate its stand that there is plenty of sugar available in the market.

However, when asked about the reason for the price rise, officials, though blamed excessive speculation, also said that high sugarcane price is also one of the factors.

Experts believe that the government should not speak the language what the industry has been telling all along, even if it is true, as sugar is controlled by it.

“Once you (government) support the industry version, they will not obey you. And the sugar industry also functions like a cartel,” a former member of CACP observed.

Even a top official of the commerce ministry has said that the Food Ministry should take the blame for following short-sighted policy,

He said the country exported nearly 50 lakh tonnes of sugar with government subsidy in a year till September 2008 and prices started rising from October.

The government had provided transport subsidy to boost export in 2006-07 and 2007-08 seasons, which witnessed bumper production.

There is an influential section in the government, which feels that farmers should be paid good price even if consumers have to pay a little higher.

So, the government also thinks that Rs 25 a kg sugar at retail level is reasonable as sugarcane price has also increased to over Rs 150 a quintal. From one quintal of cane, 8-11 kg of sugar cane be produced depending on productivity and other factors.