Sugar prices have been falling due to a bumper harvest in cane this year and last year’s large carry over stock.
The government is hence considering removing maximum stock limits for trades in order to arrest the fall in prices.
What have the traders sought?
Currently, traders are allowed to store up 1000 tonnes of sugar in the north & north east regions and 500 tonnes in the other regions.
The industry representative have now requested doing away with this cap and also sought the removal of 20% export duty on sugar.
Notably, traders also raised the issue of accumulation of cane arrears (subsidy money that is paid by the government).
What is the status in the industry?
The benchmark M-30 variety of sugar has declined by over 3% and is now trading at Rs 3,694 per quintal in Mumbai’s main markets.
Production Costs - ‘Indian Sugar Mills Association (ISMA)’ estimated the average cost of producing sugar in the 2017-18 at Rs 3,300-3,350 a quintal.
But many sugar mills in Maharashtra, are undertaking distress sale at Rs 3,275 a quintal, thereby suffering big losses.
FRP Commitments - Significantly, mills in parts of Maharashtra had committed to pay farmers Rs.200 more than the government announced “Fair & Remunerative Price (FRP)” of Rs.255.
Significantly, the government announced “Fair & Remunerative Price (FRP)” of Rs.255 for sugarcane farmers.
But mills in parts of Maharashtra had committed to pay Rs.200 more than the FRP, which will be difficult in the current situation.
The picture in UP is also only slightly better with sugar mills barely meeting the production costs.
What is the Reason for price crash?
Falling prices are normal at the beginning of the crushing season.
But the situation this year is worrisome due to the huge 4 million tonnes of carryover stocks from the last season and a bountiful output in the current season.
Notably, total sugar availability in India this year is expected to be a 25% surplus.
While 29.5 million tonnes is the estimated availability, the projected consumption is only 23.5 million tonnes.
What lies ahead?
The current downward spiral of Prices is expected to stabilise at around Rs 3,200 a quintal.
As the government has proposed the removal of stocking limits it will usher in bulk purchases.
This is then expected to help in inverting price trends, which will probably happen towards the end of January.
