Sugar prices are on the boil once again, a trend which has become all too familiar over the last year?prices have more than doubled in that period. The triggers for price rise have been many, ranging from low production and rising demand to costly imports. But even then, the spike seen in the last one month is unusual because the months from October to March are usually the time when sugar supplies are at their highest, even in low output years. Since the first week of December, retail sugar prices have jumped by almost Rs 5-6 per kg in most cities across the country, with the big surge starting on January 1, 2010. In Delhi retail markets, sugar is selling at around Rs 45 a kg. Sugar production has been estimated to be around 16-17 million tonnes in the 2009-10 season, almost 7 million tonnes less than the estimated demand of around 23 million tonnes. Though carryover stocks from last year will make up for some of the deficit, India will still need to import 4 to 6 million tonnes of sugar this year, a fact which has pushed international raw and refined sugar prices to their multi-year highs. This week, refined sugar prices for March delivery rose to $729 per tonne on the Liffe exchange, a level last seen in 1989. Similarly, raw sugar for the same month delivery jumped to 28.90 cents a pound, its highest level since 1981. The global sugar shortage is projected to widen to around 13.5 million tonnes in 2009-10 largely because of low production in India and crop loss due to excess rains in Brazil, the world?s largest producer. Locally, sugar output in Uttar Pradesh, the country?s second largest producer, in the first three months of the 2009-10 crushing season is estimated to be around 1.7 million tonnes, down from 1.8 million tonnes produced during the same period last year. Though output is slightly higher in Maharashtra, the country?s total production in the October-December period is estimated to be around 5.5 million tonnes, down 8.3% from last year. So, even if recoveries improve in the later part of crushing season, output won?t be sufficient to meet demand.
But what continues to exacerbate the problem of demand-supply mismatch?and this is why prices are high even though supply is actually better in the winter months?are the numerous market distortions that the sugar economy faces. As has been argued many times in these columns, all policies which distort normal market dynamics should be done away with immediately. The government should not be in the business of fixing the cane reserve area or fixing the monthly production quota or dictating prices to farmers and mill-owners. A low production year is the right time for taking bold decisions.
