Unusual Spike In Sugar Prices To Be Dealt Sternly: Food Ministry.

The food ministry has cautioned industry and traders that any "unusual" spike in sugar prices in the home market will be dealt with sternly, inviting higher sugar releases besides tightening of RO (release order) issues for exports.

The Centre recently cleared export of an additional 5lt of sugar under OGL at long last. It had earlier allowed export of another half million tonnes but industry started pushing for extra exports after using up the ROs for the earlier quota by early June.

"We are strictly monitoring sugar prices and will continue to do so through the festival season when spikes are most common. The minister told industry and traders categorically that if the government noticed any sharp spikes in sugar prices in the domestic market, the July release would be hiked and ROs would be strictly regulated," a food ministry official said.

The ministry is of the view that while "reasonable" profit was acceptable and natural, anything more than Rs 2-3/kg would be stringently scrutinised. It was conditional upon a commitment that prices would not shoot up, the offiicial said, that the levy quota for July was subsequently pegged low.

The commodity also propped up a double digit food inflation since 2009 which is the one thing that the government does not want to risk at this juncture despite a fall in food inflation for the week more recently.


That notwithstanding, traders expect prices to go up on increased consumer demand in the festival season and indicated that if home prices were holding at a certain level for the present, it was in anticipation of higher price realisations in the peak demand period. Retail sugar prices shot up by Rs 2-3/kg at home immediately after the EGoM okayed addtional exports of half million tonnes last week, a trend that has kept up.

In the Vashi wholesale market, prices increased by Rs 130-140/qtl in the market after the governmetn spelt out the a lower free sale quota than expected for July on Tuesday. That is propping up sentiment of more exports to be allowed soon.

Interestingly enough, food minister K V Thomas had changed his position thrice in the span of a fortnight on the issue of exports earlier this month before the EGoM agreed on an extra export quantity, showing the pressure he was under to push through the Commerce ministry proposal to allow an additional 5lt of export under OGL at the earliest.

In a meeting with industry representatives, infact, the food minister had agreed to the extra exports initially but a day later, he took a cautious position, contending that there was no question of exports until after the festival season, beginning October, was over. In both 2009 and 2010, sugar prices soared during the festival season leading, early last year, to a record retail price of around Rs 50/kg in the home market.

Industry has been maintaining that around 1.5-2mt is available for exports in the 2011-12 year, based on projections of around 24.5mt of sugar output for the period. Besides, early projections for the 2012-13 period has also been pegged high by some quarters, at around 29mt.

The government announced a free sales quota of 15.60 Lakh tonne for the month of July against 16.50 lakh tonne in June.

Though sale quota has reduced still it is higher than the expected which could bring down the bullish sentiments. According to sources, India's food ministry plans to seek a 15% import tax along with 4% ad valorem on sugar from July 1, after the deadline for tax-free imports lapses at the end of this month.

As per latest estimates from government, area under sugarcane planting till June 24th is around 50.94 lakh hectares as compared to 48.71 lakh hectares in the same period last year. According to derivative analysis, prices, volumes and open interest all have shown a positive move.

Source : economictimes.indiatimes.com