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The sorry saga of sugar prices

The sorry saga of sugar prices
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First Published: Mon, Jan 11 2010. 12 18 AM IST

Illustration: Jayachandran / Mint
Illustration: Jayachandran / Mint
Updated: Mon, Jan 11 2010. 12 18 AM IST
The sugar situation in India—a combination of high prices in the retail and wholesale markets and lower output—will continue to be complicated unless the Union government takes remedial steps quickly. Globally, sugar prices have touched new highs, making imports an expensive option.
The problem began in November after an agitation by farmers in north India about sugar cane pricing. The Union government amended certain pricing laws to placate the strong lobby of cane farmers. This, however, was not enough. The Uttar Pradesh government banned the import of raw sugar. The result: some 1.5 million tonnes (mt) are stuck at various ports. It took the step after farmers argued that refining of raw sugar by mills would hit them as mills would not like to purchase farm produce if raw sugar processing was allowed.
Illustration: Jayachandran / Mint
The results of this short-sighted political meddling in the sugar markets became obvious in January, two months later. Wholesale sugar is trading around Rs3,900-4,100 per quintal. In comparison, six to eight months earlier, trades could be settled at the Rs2,200-2,300 level. This has had an almost immediate spillover in the retail market. Sugar is now close to Rs50 per kg. This is a price reminiscent of the festival season and that too during a shortage scenario. India, the world’s biggest sugar consumer, requires 23 mt every year. Current output is estimated at 16 mt—a gap of 7 mt. Hardening of prices is a foregone conclusion.
Part of the problem is that of low acreage under sugar cane this year and poor rains hitting the crop. The way out of this situation was clear: going in for imports, at least six months before retail prices hardened. This route was blocked due to political considerations.
Today, after many delays, there are reports that import of refined and raw sugar may be allowed. But even if this change comes about tomorrow, its effects will take some time to materialize.
Spot prices in places such as New York are at a 29-year high. European markets are no better. If imports are ordered now, they will be expensive.
Two months earlier, this was something that did not require much thinking. The farmers certainly did not gain anything out of this ban. As to speculation, one should distinguish between policymaking mistakes that lead to drastic demand-supply gaps and speculation at the level of traders. Prices going north due to a shortage of 7 mt are not the domain of petty traders. The blame lies elsewhere.
Are poor policy decisions responsible for high sugar prices? Tell us at views@livemint.com
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First Published: Mon, Jan 11 2010. 12 18 AM IST
More Topics: Ourviews | Sugar | Sugar cane | Sugar price | Views |