Sugar prices, which just a few months ago were threatening to reach Rs 50 per kg in some cities, have eased considerably. In Delhi, sugar prices in the retail markets have moved down from a high of almost Rs 47 per kg to around Rs 36 per kg. So, what brought about this downturn in sugar prices, that too at a time when the common perception was that prices would push up further through the summer, when consumption demand from bulk buyers like soft drink and confectionary makers is at its peak? Well, we can thank strong improvement in the yields in UP and Maharashtra?the largest sugar growing states and government policies like stock limit on bulk consumers.
The country?s sugar production in the 2009-10 crop season that started in October 2009 is now estimated to top 17 million tonne, a good 2.5-3 million tonne more than the early season estimate. In some major markets, sugar prices have even dropped below the cost of production. Traders who had pre-purchased huge quantities of sugar in anticipation of a price rise are now forced to liquidate their inventories at a loss.
The industry?which just a few months back was talking in terms of how import deals would determine the direction of sugar mills this year?is now demanding the imposition of import duties and relaxation of stringent curbs on domestic selling. There are also reports that banks have become cautious in lending to sugar mills, affecting their working capital needs. While the consumer is happy, the millers are complaining because the mix of high sugarcane purchase price and lower retail prices is harming their margins.
There are two main lessons to be learnt from this year?s sugar story. First, production assessments by both official and non-official agencies need to be more accurate. A realistic assessment of acreage and crop conditions by states and their proper disclosure could go a long way in minimising the scare and help in framing appropriate responses. Second, the sugar sector needs to be moved out of controls at every stage?to smoothen market distorting factors. This should start right at the farm level and extend up to the final sale point.
sanjeeb.mukherjee@expressindia.com