Neal Bhai Reports — Stock Limits may Not Curb Spiralling Sugar Prices — Hyderabad: Sugar prices are likely to remain firm despite government steps to impose stock limits on the millers because of lower output, industry experts and analysts said.
Sugar production is estimated to fall to 23.3 million tonnes in the ensuing season, down from 25.2 million tonnes last season, in the world’s second largest sugarcane producer after Brazil. With around 22% of the global sugar production Brazil tops the global list, while India contributes over 14% as the second largest sugar producer, and is the largest consumer of the sweetener.
The anticipated supply constraints and festive seasons leading to surge in demand could lead to upward stabilisation of prices, helping both the sugar millers maintain their margins and sugarcane farmers have better remunerative prices. Uttar Pradesh, Maharashtra, Gujarat, Haryana, Punjab, Andhra Pradesh, Tamil Nadu, Karnataka and Bihar are the major sugar producing states in India.
Sabyasachi Majumdar, senior vice-president of rating agency ICRA, said, “The government’s move is unlikely to reduce prices although it may prevent sharp upward move ments as it is unlikely that millers are holding much of a stock that will have an impact on the prices when they enter the market. Besides, the festive season will also see demand increasing, keeping the prices firm.“
The government had earlier this month had imposed stock holding limits on the sugar millers till October end aimed at regulating prices that had shot up to `. 52 a kg in some regions. Wholesale prices which were hovering at . 31,000 per tonne level last ` year shot up to `. 36,000 per tonne this year. The government has asked the millers to keep only 24% of the sugar stock by the end of October.
Sugar prices over the past five months have been increasing by at least `.1 every month as the production in 2015-16 had declined by 11% to 25.2 million owing to drought conditions in some of the major sugar growing areas in Maharashtra and Karnataka.
NEAL BHAI VIEW
Imposing stock-limits on sugar is bad idea. The basic forces of supply and demand set sugar prices both the physical and futures markets. Better prices will encourage farmers to plant more cane in the next season just as it happened in pulses. The government should do away with export duty on sugar and allow import of raw sugar at zero duty. The point to allow prices to adjust, and not revert to inspector raj. — Gold Silver Reports