Sugar prices to remain firm
Sugar prices have been continuously rising since past few months. Itwas predictable. Sugar experts all over the country had warned thegovernment through their analysis about the mismatch of demand andsupply; and how the prices would rule firm in the near future. In myearlier blog, I had mentioned how sugar prices would rule firm at theyear end. The agriculture minister was wrong from the very beginning.Though, it has allowed sugar mills to import duty-free sugar againstadvance licenses (AL) on a ‘tonne-to-tonne’ basis, yet the decisioncame very late. Already, sugar prices are ruling very high.
Afew weeks back, the agriculture minister Sharad Pawar had said that theproduction in India would fall to around 18 million tones from 26million tonnes a year ago. Yet, the ministry was reluctant to allowimports. The difference in opinion between the agriculture minister andthe commerce minister has affected the sugar sector badly. Yet, thedecision will bring some cheers to all those involved with the sugarsector. I will explain the reason for saying some cheers.
With this decision, the mills can now import the duty-free sugar and sell it in the domestic market after reprocessing it into white sugar. The export obligation can be made later on from the domestic production,but within two year. This will help bring down the prices by making available more sugar in the market. According to earlier policy, which believed in ‘grain-to-grain’, the mills that were allowed to import raw sugar had an obligation to re-export the same consignment after reprocessing it within two years of the AL being issued. But, the present policy means that the mills can meet the export obligation by processing cane independently.
Though, in the near term pricesmay cool a bit, yet, in the long run the sugar sector will see manyhappenings. The prices will climb to a new height unless governmentcomes out with more liberal policies for this sector. The reportscoming from various quarters indicate that the production of sugar thisyear will fall even below the expected 18 million tonnes. It should benoted that last year due to average monsoon in the sugarcane growingareas of Maharashtra, farmers had converted their standing cane forfodder. Poor monsoon led to poor production of fodder; hence, farmershad no other option but, to convert their crop into fodder. So, thefarmers then chose to harvest the cane for fodder rather than waitingfor the crops to mature to sell it to the sugar mills.
Sugar recovery too this year is expected to fall drastically. Sugar recovery is the percentage of sugar mills extract from every tonne of cane crushed. The average recovery in Uttar Pradesh so far this season has been 8.8 per cent against 9.48 per cent in the same period last year.As a result, the overall production in the state is expected to fall.Lower recovery of sugar is due to cane plant suffering damage from the frost.
Even the area under cultivation was lower last year asthe mills were (are) not in a position to pay farmers the State AdvisedPrice (SAP). At the same time, due to poor monsoon, yield too fell toaround 32 tonnes a hectare from 58 tonnes a hectare in the year2007-08. One thing that the government needs to carefully examine isthe pricing of cane. What should be the right price for the mills to beable to pay to the farmers? More important, who should dictate theprice? It is irony that the Union Government comes out with StatutoryMinimum Price (SMP) and the state comes out with their State AdvisedPrice (SAP), usually much higher than the SMP to score brownie pointswithout realizing the implications of such policy. When the prices rulevery high and the consumers are in pain, it is the Central Governmentthat has to act and not the state government. So, why should a state begiven a right to decide the pricing of cane when it doesn’t come intopicture?
Due to poor availability of cane for crushing, most ofthe mills are expected to shut their crushing by March end. Normally,crushing continues till April. In Maharashtra, out of 145 mills thathad started crushing this season, 14 have already closed, compared toone out of 165 mills last year (2007-08). So, the overall picture looksbleak for the sugar sector. In the near term, prices will rule in arange as the government will ensure sufficient supply in the marketthrough free sale quota (FSQ) as this is a election year.
Posted earlier at: www.singhsanjay.blogspot.com
Afew weeks back, the agriculture minister Sharad Pawar had said that theproduction in India would fall to around 18 million tones from 26million tonnes a year ago. Yet, the ministry was reluctant to allowimports. The difference in opinion between the agriculture minister andthe commerce minister has affected the sugar sector badly. Yet, thedecision will bring some cheers to all those involved with the sugarsector. I will explain the reason for saying some cheers.
With this decision, the mills can now import the duty-free sugar and sell it in the domestic market after reprocessing it into white sugar. The export obligation can be made later on from the domestic production,but within two year. This will help bring down the prices by making available more sugar in the market. According to earlier policy, which believed in ‘grain-to-grain’, the mills that were allowed to import raw sugar had an obligation to re-export the same consignment after reprocessing it within two years of the AL being issued. But, the present policy means that the mills can meet the export obligation by processing cane independently.
Though, in the near term pricesmay cool a bit, yet, in the long run the sugar sector will see manyhappenings. The prices will climb to a new height unless governmentcomes out with more liberal policies for this sector. The reportscoming from various quarters indicate that the production of sugar thisyear will fall even below the expected 18 million tonnes. It should benoted that last year due to average monsoon in the sugarcane growingareas of Maharashtra, farmers had converted their standing cane forfodder. Poor monsoon led to poor production of fodder; hence, farmershad no other option but, to convert their crop into fodder. So, thefarmers then chose to harvest the cane for fodder rather than waitingfor the crops to mature to sell it to the sugar mills.
Sugar recovery too this year is expected to fall drastically. Sugar recovery is the percentage of sugar mills extract from every tonne of cane crushed. The average recovery in Uttar Pradesh so far this season has been 8.8 per cent against 9.48 per cent in the same period last year.As a result, the overall production in the state is expected to fall.Lower recovery of sugar is due to cane plant suffering damage from the frost.
Even the area under cultivation was lower last year asthe mills were (are) not in a position to pay farmers the State AdvisedPrice (SAP). At the same time, due to poor monsoon, yield too fell toaround 32 tonnes a hectare from 58 tonnes a hectare in the year2007-08. One thing that the government needs to carefully examine isthe pricing of cane. What should be the right price for the mills to beable to pay to the farmers? More important, who should dictate theprice? It is irony that the Union Government comes out with StatutoryMinimum Price (SMP) and the state comes out with their State AdvisedPrice (SAP), usually much higher than the SMP to score brownie pointswithout realizing the implications of such policy. When the prices rulevery high and the consumers are in pain, it is the Central Governmentthat has to act and not the state government. So, why should a state begiven a right to decide the pricing of cane when it doesn’t come intopicture?
Due to poor availability of cane for crushing, most ofthe mills are expected to shut their crushing by March end. Normally,crushing continues till April. In Maharashtra, out of 145 mills thathad started crushing this season, 14 have already closed, compared toone out of 165 mills last year (2007-08). So, the overall picture looksbleak for the sugar sector. In the near term, prices will rule in arange as the government will ensure sufficient supply in the marketthrough free sale quota (FSQ) as this is a election year.
Posted earlier at: www.singhsanjay.blogspot.com
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