Sugar prices up nearly 20% on last year ahead of festivals; Centre cuts traders' stock limit to 1,000 quintals

With the festival season approaching, household kitchen budgets are being strained by rising sugar prices. Sugar prices have been climbing steadily for the past few months, and rates have reached high levels not only in India but also in the global market.

Retail sugar prices in the country are at their highest in 19 months and are up by about 20 per cent on last year. Sugar that sold at Rs 48 a kg a few months ago has now reached Rs 55 to 56.

In the international market too, sugar prices are at a two-year high. Sugar futures in the US rose 4 per cent in a single day and have also risen sharply over the past few months. The global price is reported to be around 21 dollars per pound.

The biggest reason for the rise is a fall in sugar production worldwide. India, Brazil and Thailand are the largest sugar-producing countries, and in all three, changes in the weather have directly affected the sugarcane crop. Due to the effect of El Nino, rainfall patterns went awry in India and Brazil, putting the cane yield at risk.

Brazil received heavier rain this year, which caused major disruptions in cane processing. Sugar production there has fallen by more than 14 per cent to 26 million tonnes. In India, a weak monsoon and low rainfall have led to a sharp fall in both cane yield and sugar recovery. Cane production in Maharashtra and Karnataka in particular is down by 20 to 40 per cent. India's production was earlier estimated at about 34.3 million tonnes, but it is now expected to drop to around 30 million tonnes.

Thailand's sugar output is also expected to fall by up to 17 per cent, creating a global shortage. According to StoneX, the world could face a shortage of about 900,000 tonnes of sugar in the coming period.

There are other factors besides production. India's annual domestic consumption is about 28 to 29 million tonnes. With production this year at about the same level or slightly higher, the supply chain is under pressure. A large share of India's sugar goes into making ethanol. To keep sugar available and prices in check, the government is considering stopping the diversion of sugar to ethanol or placing strict controls on it, so that enough sugar stock remains for consumption as food. On the other hand, with prices rising abroad, sugar mill owners and traders see big profits in exports. Large-scale exports raised fears of a shortage in the domestic market, and traders held back stock.

Demand for sugar rises during festivals such as Diwali for sweets and other products. Higher prices then upset the budgets of ordinary families, and the blow falls directly on homemakers and retail buyers. Meanwhile, shares of sugar companies have risen in the stock market. Shares of companies such as Dhampur Sugar Mills, Shakti Sugars, Dalmia Bharat Sugar, Triveni Engineering, Shree Renuka Sugars, Avadh Sugar and Balrampur Chini Mills gained 4 to 9 per cent. The market expects higher prices to raise these companies' earnings.

The Centre has taken strict steps to curb rising prices and to prevent black-marketing or artificial shortages during the festival season. The Ministry of Food has imposed restrictions on sugar traders to keep prices in check and prevent speculation. The stock limit for traders has been cut to just 1,000 quintals. The rule is in force across the country from October 15 to November 30, except in Kolkata, its surrounding area and Assam. In August the limit was 4,000 quintals, then 2,000 quintals, and it is now 1,000 quintals.

The aim of the policy is to prevent needless hoarding in the supply chain and to ensure that sugar reaches customers directly from mills at the right price without hindrance. It is hoped that the government's steps and the strict stock limit will stop prices from running out of control during the festival season.