UP government’s decision to raise the cane procurement prices will inflate sugar prices further say experts
The prices of sugar are set to increase following Uttar Pradesh (UP) government’s decision to hike rates for sugarcanes to Rs240 per quintal from Rs205-Rs210 per quintal. Its effect can be seen in the markets sugar prices at retail level moving up by about Rs3-Rs4 per kg. UP is the second largest sugar producing state in India.
“The cane procurement prices have been increased by the UP government. This will directly affect the retail prices for sugar. From the current level, sugar prices are expected to rise further,” says Sageraj Bariya, managing partner, Equitorials research firm.
Currently the ex-mill price in UP is around Rs29 per kg. In Mumbai’s Vashi market, the prices are currently trading at Rs2-3 higher as compared to a month ago. Yesterday, in the Vashi’s wholesale market, M-grade sugar was quoted at Rs33 per Kg and S-grade was Rs32 per Kg.
There is a dispute going on between the farmers and government over the pricing policy for sugarcane. Last month, the Maharashtra government in agreement with farmers declared three different rates for sugarcane. Accordingly sugar factories across the state will buy sugarcane between Rs1,800 to Rs2,050, depending on the area. In Maharashtra co-operative sugar factories, mostly controlled by politicians, dominate the sugar industry.
The UP government increased the state advised price (SAP) by Rs35-40 per quintal of sugarcane to Rs235-240 per quintal for different varieties, against which the sugar industry in UP has filed a petition at the Lucknow bench of the Allahabad High Court, requesting it to quash the minimum buying price.
Indian Sugar Mills Association (ISMA), general secretary Shyamlal Gupta told Moneylife that, “Election is approaching and the cane pricing policy has been increased to Rs240 per quintal from the earlier Rs210 per quintal. It is a clear strategy of the government. This will affect the sugar mills from the state, and would eventually lead to arrears and defaults in bank loan payment. Our petition is pending with the Lucknow bench of Allahabad High Court.”
“The ex-mill prices should be at least increased to Rs3,400-Rs3,500 per quintal if the mills have to sustain. This naturally means that the retail price will go up by around Rs3-4 per Kg,” Mr Gupta added.
For the current year, India’s sugar production is estimated to 26 million tonne, around 2 million tonne higher compared to last year. The consumption is pegged at 22.5 million tonne. On 22nd November, the Empowered Group of Ministers (EGoM) approved export of one million tonnes of sugar under the Open General License (OGL) scheme.
In its second quarterly results Balarampur Chini, leading player in the sugar industry, noted that, “As we enter into 2011-12 sugar season, we anticipate the price pressure to ease on the domestic front due to export potential thereby facilitating improved performance by the sector as a whole. Exports gain significance in the current operating scenario when the SAP for cane has increased making it un-remunerative for sugar mills to convert cane to sugar at the current realizations.”
Mr Gupta says that, “The long term solution for this problem is to link the sugar cane prices to the prices of sugar realisation.”
While there appears to be mess in terms of fixed policy for sugarcane prices across the country, world over, sugarcane prices are linked with sugar prices. Major sugar producing countries like Brazil, Australia and Thailand share or pay 70% of the sugar prices to farmers as price for sugarcane.