Sugar buffer may rise to 5 mt
The Union Cabinet is likely to consider a proposal by the food ministry that the sugar buffer be hiked to 5 million tonne from the 2 million tonne.
By Prabha Jagannathan, TNN |
NEW DELHI: The Union Cabinet is likely to consider a proposal by the food ministry that the sugar buffer be hiked to 5 million tonne from the 2 million tonne. This follows trade estimates that the industry may have to take a bitter pill thanks to the high inventory stock up. It is estimated that India will end the sugar season this October with stock of 7.86 million tonne.
“Thus, even if a buffer of 5 million tonne is created, we will have around 2.86 million tonne to export,” said Csi Kannan of Kotak Commodity Services. The creation of a 5-million-tonne buffer is expected to boost sugar prices from Rs 1,250 to Rs 1,375 per quintal for June contracts.
Sources said two proposals have been put up by the food ministry. The other was to extend the 2-million-tonne buffer for another year, as was done 2003, to check flow of sugar in market. However, this has not found favour with the Cabinet. Maintaining a 2-million-tonne buffer is estimated to cost the Centre Rs 400 crore in reimbursement of storage and other costs to sugar mills. A 5-million-tonne buffer would cost an estimated Rs 900 crore but would allow sugar mills to clear cane arrears urgently since banks, which have over the last year been reluctant to lend to the industry, would now have to do so on behalf of the Centre.
The industry expects to end the year with huge stocks, including carryovers. According to the Indian Sugar Mills Association (ISMA), the industry would hold a sugar year-end stock of 12.5 million tonne for 2006-07 while by end October this year the stocks are expected to be 20 million tonne. This against an annual domestic requirement of only 19.5 million tonne.
For 2006-07, estimates of a bumper sugarcane crop spelt sugar production of at least 23 million tonne (some peg the estimates at 25 million tonne), compared to 19.2 million tonne last year. The current sugar year started with a carry over stock of close to 4 million tonne, ballooning the supplies and bringing sugar prices crashing down.
Industry sources said the massive glut in sugar has meant that no trade stock is maintained this year. Normally, the trade stocks 20 lakh tonne annually but this could mean big losses, given the current low price of sugar. Making matters worse is the fact that exports have been markedly low in a southward-bound global market despite export subsidies cleared by Cabinet earlier this year, after imposing a prolonged, over six-month export ban on the industry despite its protests. That was done apparently with the view to check inflation and high domestic prices by easing supply constraints.
Thus far, most exports have been from Maharashtra, where the state government announced an additional export subsidy to cooperatives for sugar exports, over and above that announced by the Centre.
“Thus, even if a buffer of 5 million tonne is created, we will have around 2.86 million tonne to export,” said Csi Kannan of Kotak Commodity Services. The creation of a 5-million-tonne buffer is expected to boost sugar prices from Rs 1,250 to Rs 1,375 per quintal for June contracts.
Sources said two proposals have been put up by the food ministry. The other was to extend the 2-million-tonne buffer for another year, as was done 2003, to check flow of sugar in market. However, this has not found favour with the Cabinet. Maintaining a 2-million-tonne buffer is estimated to cost the Centre Rs 400 crore in reimbursement of storage and other costs to sugar mills. A 5-million-tonne buffer would cost an estimated Rs 900 crore but would allow sugar mills to clear cane arrears urgently since banks, which have over the last year been reluctant to lend to the industry, would now have to do so on behalf of the Centre.
The industry expects to end the year with huge stocks, including carryovers. According to the Indian Sugar Mills Association (ISMA), the industry would hold a sugar year-end stock of 12.5 million tonne for 2006-07 while by end October this year the stocks are expected to be 20 million tonne. This against an annual domestic requirement of only 19.5 million tonne.
For 2006-07, estimates of a bumper sugarcane crop spelt sugar production of at least 23 million tonne (some peg the estimates at 25 million tonne), compared to 19.2 million tonne last year. The current sugar year started with a carry over stock of close to 4 million tonne, ballooning the supplies and bringing sugar prices crashing down.
Industry sources said the massive glut in sugar has meant that no trade stock is maintained this year. Normally, the trade stocks 20 lakh tonne annually but this could mean big losses, given the current low price of sugar. Making matters worse is the fact that exports have been markedly low in a southward-bound global market despite export subsidies cleared by Cabinet earlier this year, after imposing a prolonged, over six-month export ban on the industry despite its protests. That was done apparently with the view to check inflation and high domestic prices by easing supply constraints.
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Thus far, most exports have been from Maharashtra, where the state government announced an additional export subsidy to cooperatives for sugar exports, over and above that announced by the Centre.
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