Retail sugar prices are expected to ease over the next fortnight as a sharp fall in factory-gate prices begins to work its way through the supply chain, offering some relief to consumers ahead of the festive season.
Ex-mill sugar prices in major producing states have fallen nearly 20% in a week, declining to around Rs 5,000 per quintal in Uttar Pradesh and Rs 5,300 a quintal in Maharashtra on Friday, from about Rs 6,500 a quintal last week.
Government Interventions
The correction follows the Centre’s decision to allow duty-free imports of 1 million tonnes of raw sugar, alongside a wider crackdown on hoarding and a move to cap sugar inventories held by bulk industrial users at 15 days.
The government’s measures have helped ease supply concerns and speculative buying, although food companies had initially opposed the inventory cap, arguing that it could disrupt production.
Industry executives said the operational constraint has since eased, with food companies being allowed to replenish sugar stocks on a “rolling basis”. This is particularly important ahead of the festive season, when demand for sugar-intensive products typically rises.
Food companies generally hold at least a month’s inventory to maintain uninterrupted production. They also hedge price and supply risks through longer-term contracts with suppliers. The inventory restrictions had made companies cautious about entering into such contracts.
“Given the normal transmission of changes through the supply chain, retail prices are expected to follow the downward movement in ex-mill prices shortly,” the food ministry said in a statement on Friday.
The average retail price of sugar stood at Rs 64.1 a kg on Friday, up 39% year-on-year and 31% from a month earlier, according to the Department of Consumer Affairs’ price monitoring cell. In several urban centres, prices have crossed Rs 70 a kg, compared with around Rs 45-50 a kg a month ago.
The food ministry attributed the recent spike largely to hoarding and speculation rather than an actual shortage. “The downward trend in ex-mill and retail prices reflects that the sharp spike in prices witnessed recently was primarily on account of hoarding and speculation although the country carries adequate stocks of sugar,” it said.
A nationwide exercise to physically verify sugar stocks at mills has also reinforced the government’s assessment that supplies are comfortable. In several instances, mills were found to be holding more sugar than they had declared in their monthly returns to the government, the ministry said.
For food manufacturers, the decline in prices could help contain input costs after the sharp run-up in sugar prices. Sugar is a key ingredient across a broad range of products, including syrups, juices, soft drinks and biscuits.
“Easing of sugar prices will mean that firms may not have to deal with runaway costs,” said Raghav Jadli, president of the All India Food Processors’ Association, an apex body of food companies.
Stabilise Market Supply
In another step aimed at improving market supply, the food ministry on Friday announced a fortnightly sugar allocation system from September, replacing the existing monthly quota mechanism. Under the new system, mills will have to sell at least 40% of their allocation in the first week and the balance in the following week.
The move is expected to ensure a more regular flow of sugar into the market and reduce the scope for supply being withheld in anticipation of higher prices.