To contain price rise in sugar in recent months, traders and dealers will likely be allowed to stock up to a maximum of only 500 tonnes each in most parts of the country under a new stock-holding norm the food ministry is expected to notify shortly, sources told FE on Monday.
The government is considering suspending an earlier order for the compulsory sugar exports of 3.2 million tonnes, amid apprehensions that a back-to-back drought in key regions of Maharashtra and Karnataka could cut output in the next marketing year starting October, the sources said.
Mills have already shipped out roughly 1.5 million tonnes, out of the 3.2 million tonnes of sugar they are mandated to export under a provision whereby the government provides subsidy of Rs 4.5 to farmers for the supply of every quintal of cane for sugar production. The government last year directed sugar mills to export, a move aimed at reducing a glut in the domestic market and arresting a slide in the price of the commodity, which had resulted in massive cane arrears.Mills were required to export the entire quantity of sugar by the end of the current marketing year (September 30).
But as prices of sugar have inched up in the domestic market on apprehensions of erratic weather, government officials believe the mandatory export rule isn’t required at this point of time. Domestic sugar prices climbed around 40% since the current marketing year started on October 1, 2015 on fears that sugar output in 2016-17 could drop by as much as 14% from a year before. Already, according to the estimate by the Indian Sugar Mills Association, the country is likely to produce 25 million tonnes of the sweetener in 2015-16, down 11.7% from a year ago.
However, the food ministry is yet to circulate any Cabinet note for revoking the mandatory export order, the sources said.
To ensure that hoarders don’t jack up prices of sugar, the Cabinet on April 27 decided to introduce, after a gap of close to five years, limits on sugar stocks a trader can keep. Accordingly, the food ministry is expected to soon notify the ceiling at 500 tonnes for traders in all states, barring West Bengal where the limit is likely to be kept at 1,000 tonnes, said the sources.
The limit, to be set by the food ministry, will enable states to crack down on hoarding of sugar to keep prices under control. In late 2011, the government had scrapped the stock holding limit on sugar due to plentiful supplies.
The move, however, comes as a setback for sugar mills that have witnessed losses for almost three years due to the fixing of cane prices at elevated levels, mainly by states like Uttar Pradesh (although even the price fixed by the Centre was too high to pay last year). Elevated debt levels have compounded their woes.
The International Sugar Organization had in February predicted global sugar deficit for the current marketing year through September at 5 million tonnes, compared with 3.5 million tonnes announced in November, anticipating lower production in India, Thailand, Brazil and the EU. The London-based sugar body said it expected global sugar output of 166.8 million tonnes in 2015-16, against 171.2 million in 2014-15. “Although 2015/16 is expected to be the third consecutive season of shrinking global output, for the first time since 2008/09 the production fall is so pronounced as to exceed 4 million tonnes,” it said.
Cane planting in India, Brazil and Thailand has already been affected by El Nino and the resultant erratic weather in some producting regions in 2015-16 marketing year.