Sugar prices are falling and in the last three months retail prices have come down by almost Rs 5-8 per kg because of improved output prospects and a series of measures taken by the government to boost supplies.
But, a back of the envelope calculation of cost of producing sugar from locally produced cane or processing imported sugar shows that in whatever form sugar is produced and howsoever high the cost of production is, there is still scope for another Rs 2-5 per kg drop in retail prices.
As per official estimates, ex-factory price of sugar produced from locally procured cane calculated at a cane price of Rs 240 per quintal and 9.5% recovery rate comes to around Rs 3,461 per quintal, which includes duties and taxes.
This when added to the wholesalers and retailers margin and transport cost at both the stages should bring the actual retail sugar price at around Rs 37 per kg.
But in reality, sugar in most cities across India is selling at around Rs 39 to Rs 41 per kg. In other words, the retail price is still almost Rs 2-3 per kg more than the realistic price.
?In normal conditions the difference between mill gate price of sugar (the price at which mills sell sugar to wholesalers and the retail price should not be more than Rs 3-4 per kg, but presently this difference is still at around Rs 7-8 per kg, despite a drop in sugar prices,? officials said. A similar sort of calculation done for sugarcane procured at Rs 260 per quintal also at 9.5% recovery rate shows that the actual retail price should be somewhere around Rs 40 per kg.
Now, if the recovery rate of sugar is around 9.0% as has been the case in many areas of Uttar Pradesh and Maharashtra, then the ex-factory price of sugar (including duties and taxes) for cane procured at Rs 240 per quintal is estimated to be around Rs 3,647.22.
This sugar at the retail level should cost a consumer around Rs 39 per kg, after taking Rs 230 per quintal as wholesalers and retailer?s margin, plus transportation cost at both the levels.
If the cost of cane procurement is calculated at Rs 260 per quintal at 9% recovery, then only the retail sugar price is more than the current prevailing rate at Rs 42 per kg. But, such situations are rare as most sugar mills have purchased cane this year at around Rs 250 per quintal.
Now, with India importing more than 4 million tonnes of sugar this year both in raw and refined form does the current prevailing retail price are at realistic levels. The answer is an emphatic no.
As per the official calculation, the ex-factory price of imported raw sugar converted into refined is around Rs 31,307 per tonne, including taxes.
This when added to the wholesalers margins of Rs 200 per tonne, transportation of the wholesalers at Rs 400 per tonne, retailers margin at the rate of Rs 1,500 per tonne and local transport at Rs 200 per tonne, brings the retail price at Rs 33,607 per tonne. An additional cost of Rs 500 per is incurred by the millers for transportation of raw sugar from ports to their respective factories. So also, the retail price of imported refined sugar should be somewhere around Rs 37 per kg. ?In areas, while mill gate price has come down because of strong measures taken by the government, wholesalers and retailers have escaped attention and this is where the states have to step in,? officials said.