Sugar industry urges Centre to relax the stock holding limit of 10 days

NEW DELHI: Sorry, but you’ll just have to grin and bear the losses for now. The Centre has signalled to the beleagured sugar industry which shot off urgent SOS missives to food minister Pawar last week.

The letters had urged - against nosediving domestic consumer and global sugar import prices, slipping sugar company stocks and mounting production cost losses compared to the rosy peak prices of January 2010 - that the Centre relax the stock holding limit of 10 days imposed on bulk sugar users on priority and revert at the earliest to the monthly (from the current weekly) sugar release mechanism for free sale sugar besides reimposing the 60% import duty on white sugar. The switch to weekly sugar sales followed a February 2, 2010 order.

"We’re disinclined to rush to the industry’s aid just 15-20 days after import and domestic prices started going down. Lower sugar prices have helped consumers and calibrated food inflation. We would want to wait until sugar prices stabilise at reasonable levels before intervening," a top food ministry official said. "We’re monitoring prices keenly and, should volatility persist. we could consider some steps well before September."

Nor indeed are there any plans to revoke the ban on sugar futures trade, imposed from May 27, 2009 upto September this year. Early this month, the Centre said it suspended futures trade in domestic exchanges to check soaring sugar prices, thus pushing retail prices down to Rs 31-32/kg compared to peak price of Rs 50/kg in January.

Infact, domestic prices have crashed by over Rs 1000/qtl compared to the peak prices in January 2010 under the combined impact of increased production (16.8 m tonnes) and supply estimates (26 m tonnes) for 2010-11, sharp fall in global market prices and the unprecedented level of government controls on free sale of sugar.

While that has brought much-needed respite to consumers, mills face the threat of credit limits being squeezed, accumulating huge arrears to farmers and spelling low cane coverage in the coming year, the Indian Sugar Mills Association (ISMA) cautioned Mr Pawar in a letter.

Thus far, farmers have been paid an estimated Rs 19000 crore above the F&RP for sugarcane for 2009. Payment for sugarcane in UP, which rose to an unprecedented high of Rs 260/qtl, has already been reduced by Rs 20/qtl. However, the high sugarcane price to farmers lasted only five months.

The London Daily Price for white sugar for May 2010 closed for the week ending March 8 at $589.90/tonne, down by $46.50/tonne from last week’s closing quotation. New York 11 for raws for May 2010 closed with a loss of $1.54 at $489.20/tonne.

Sugar wholesale prices have declined to Rs 2700-3100/qtl, way below the break-even level of production for sugar mills, after factoring in losses credited to sale of 20% of total output as levy quota at a heavily subsidised price. "Even at the low break even price levels, trade is unwilling to buy," Mumbai-based commodity analst maintained. In fact, prices for imported raw sugar in the 11 month period between February 2009 and January 2010 witnessed not just sharp intra-year price volatility but also sharp intra month price volatility.

Against that, ISMA president Vivek Saraogi’s letter to food minister Sharad Pawar has urged him to "completely relax or atleast to increase to 30 days of production" the stock holding limits for bulk consumers, who are sourcing sugar almost wholly from imports on prioriy. The imports are free from stock holding limits.

source: ET