Sugar import may not dissolve speculation

NEW DELHI: The Centre’s downward revision of sugar output estimates for 2008-09 by 40 lakh tonnes is likely to increase speculation in prices
this year even as the government has decided to import raw sugar to meet the shortfall.

Ironically, the government’s estimates have come down from 220 lakh tonnes to 180 lakh tones within a span of only three months. This appears to have affected rates in the last two months with domestic prices shooting up by up to 16%. Consequently, the commodity, which ruled at Rs 1,850/quintal shot up to Rs 1,982/quintal by December-end.

The current prices are at Rs 2,135/qtl although the food ministry has already given a go-ahead to import duty free raw sugar. “That announcement, coming as it did after prolonged speculation, should have pressured prices downward to some extent. It has not,” said people in the know.



This isn’t by any means the first time that the government’s sugar sector estimates have been grossly wrong, jeopardizing domestic prices as
a consequence. In 2007-08 sugar year, for the second year running, the government showed up tellingly the low credibility attached to its farm and food output estimates.

While ISMA itself pegged sugar output closer to 260-265 lakh tonnes by February 2008, the food ministry stubbornly refused to pare down its estimate of a much higher 280 lakh tonnes. In the last sugar year, industry had earlier in the year pegged sugar output estimate at a much higher output of 330lt, later down pegged to 300lt.

That calibrated output estimate brought down production levels by a good 70 lakh tonne. Significantly, Mr Pawar s mid-January 2008 assessment promptly pushed up domestic sugar prices to Rs 1500/qtl from only Rs 1350/qtl prior to that.

Promptly, firmer domestic prices also jeopardized the export target of 3.5 m tonne..It was only after the food ministry calibrated its output estimates to synchronise with that of the industry and global prices simultaneously shot up from only 9 cents/pound to around 14 cents/pound that it started to make economic sense for industry to export.

Apart from sugar, sugar cane output estimates too have be reworked in a marked manner time and again between the official first advance crop production estimates and the fourth, triggering off volatility in sugar prices in the domestic market.
source:ET

The food ministry’s sugar estimates stood at a high 220 lakh tonnes towards November-end. This was spelt out by minister Sharad Pawar at the Economic Editors’ conference. Food ministry officials, however, had disclosed to ET that an internal October meeting of state cane commissioners had suggested a low estimate of 200-190 lakh tonnes.

At the Indian Sugar Manufacturers’ Association meeting in end December, Mr Pawar downpegged his ministry’s sugar estimates by a good 20 lakh tonnes to 20 million tonnes. Industry estimates by this time, however, had plunged lower to 180 lakh tonnes, vehemently rejected by the food ministry.

Interestingly, the sugar industry was divided vertically prior to the ISMA meeting, over the issue of whether raw sugar imports were at all needed to boost domestic supply. However, even those earlier opposed stringently to such imports had softened their stand at the ISMA meeting, arguing instead for a calculated strategy by which the government delayed imports until February or March 2009, allowing domestic sugar prices to firm up to an extent.

It took Mr Pawar until January 20 last week to finally admit that the government’s estimate was the same as that of industry, at only 180 lakh tonnes, against a domestic consumption of 22-23 million tonnes.

He attempted to dull apprehensions over prices shooting up by asserting that the revised estimates would not pinch domestic supply or impact adversely on prices and that, moreover, industry estimates of only nine million tonnes in carry over were also much lower than the government’s own estimate of 11 million tonnes.

That notwithstanding, the sharp upsurge in sugar prices over the last two months alone__ the same period within which the food ministry has been brazenly down pegging its sguar estimates by 20 lakh tonnes virtually every three or four weeks__is proof enough of heightened speculative activity, according to a sugar sector analyst.