The Sugar Crisis
(My view of the problem).
Sugar prices have risen very high in the recent past. The share prices of some sugar companies are trading at all time highs. So what must have caused sugar to taste bitter?
The government has admitted that there is a shortfall of 5-million-tonnes this year between India’s sugar demand and supply. So the wise men in the government debated on the pro’s and con’s of importing sugar. Then, the government asked STC, MMTC and PEC to import white sugar. But then importing sugar at international prices and selling them nationally at low prices didn’t make sense. Prices kept rising.
In the meantime the sugar time bomb was ticking. The festival season is approaching followed by elections in Maharashtra. The commodity futures trading in sugar was banned in May with the intention of curbing high prices, so no one had a clue how high the prices would rise. The prices continued their upward journey.
The next action from the government was to issue warning to “hoarders”. They issued notices to wholesalers, dealers, food factories, soft drink makers to stop hoarding. They were asked to maintain stocks sufficient for 15 days of production. The excess is to be sold in the open market. Failure to comply would lead to jail under the Essential Commodities Act. While the intention was good it was insufficient to address and control the issue.
This means that these companies now have to put in additional effort to maintain 15 days stock and do the management to ensure that sugar is made available after 15 days too. The only relief to them is that there is no duty on the imported sugar. Here too there was a rider! A month ago, the government told the port authorities to penalize any company that does not remove cargo within 72 hours of landing in India. For a shipload of 50,000 tonnes, this means clearing out 11 tonnes per minute. The result was predictable - Trading companies either stopped booking cargoes or slowed down. Later this rule was changed to extend the period to 21 days. But all this shows the knee jerk reactions from the powers that be. In the meanwhile sugar prices continued to rise.
The government took another initiative and asked the sugar companies to sell a record number of bags in the open market in September. This was intended to increase the availability of sugar and bring prices down. But this has also created a situation wherein traders have to import sugar at high prices and sell at low prices.
All this has raised the cost of doing business in sugar without dealing with the real problem of shortage. And we the consumers are paying the price! All this will hopefully end if we get a good rainfall next year and farmers decide to grow sugarcane again next year. If at all many farmers grow sugarcane next year and there is a good rainfall then the minimum support price of sugarcane would fall. This will lead to less sugarcane the year after that! One year of bad planning and we get caught into a vicious circle.
Sugar prices have risen very high in the recent past. The share prices of some sugar companies are trading at all time highs. So what must have caused sugar to taste bitter?
The government has admitted that there is a shortfall of 5-million-tonnes this year between India’s sugar demand and supply. So the wise men in the government debated on the pro’s and con’s of importing sugar. Then, the government asked STC, MMTC and PEC to import white sugar. But then importing sugar at international prices and selling them nationally at low prices didn’t make sense. Prices kept rising.
In the meantime the sugar time bomb was ticking. The festival season is approaching followed by elections in Maharashtra. The commodity futures trading in sugar was banned in May with the intention of curbing high prices, so no one had a clue how high the prices would rise. The prices continued their upward journey.
The next action from the government was to issue warning to “hoarders”. They issued notices to wholesalers, dealers, food factories, soft drink makers to stop hoarding. They were asked to maintain stocks sufficient for 15 days of production. The excess is to be sold in the open market. Failure to comply would lead to jail under the Essential Commodities Act. While the intention was good it was insufficient to address and control the issue.
This means that these companies now have to put in additional effort to maintain 15 days stock and do the management to ensure that sugar is made available after 15 days too. The only relief to them is that there is no duty on the imported sugar. Here too there was a rider! A month ago, the government told the port authorities to penalize any company that does not remove cargo within 72 hours of landing in India. For a shipload of 50,000 tonnes, this means clearing out 11 tonnes per minute. The result was predictable - Trading companies either stopped booking cargoes or slowed down. Later this rule was changed to extend the period to 21 days. But all this shows the knee jerk reactions from the powers that be. In the meanwhile sugar prices continued to rise.
The government took another initiative and asked the sugar companies to sell a record number of bags in the open market in September. This was intended to increase the availability of sugar and bring prices down. But this has also created a situation wherein traders have to import sugar at high prices and sell at low prices.
All this has raised the cost of doing business in sugar without dealing with the real problem of shortage. And we the consumers are paying the price! All this will hopefully end if we get a good rainfall next year and farmers decide to grow sugarcane again next year. If at all many farmers grow sugarcane next year and there is a good rainfall then the minimum support price of sugarcane would fall. This will lead to less sugarcane the year after that! One year of bad planning and we get caught into a vicious circle.
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