Sugar prices likely to go up due to supply shortage

Sugar prices increased 22.3% y-o-y in May 2016 as per the WPI inflation rate.

Sharath Chowdary

Sugar prices in India are likely to increase due to the shortage of stocks in the country. The drought condition in the main sugar producing states has resulted in less supply. If the monsoon is not proper this year, the sugar prices may rise by Rs.50-70 per quintal, Mukesh Kuvedia, Secretary General of Bombay Sugar Merchants Association told The Dollar Business Bureau.

Explaining the reasons for low supply, he said, “Maharashtra, the biggest sugar producing state in India, has seen severe drought situation in its Vidarbha region. Due to this, the sugar production from the state has decreased to 80 lakh tonnes in 2015-16 sugar season when compared to 110 lakh tonnes in 2014-15 season. Similar situation was prevailing in other sugar producing states like Tamil Nadu and Karnataka.”

“Uttar Pradesh, second largest sugar producing state in India has produced 68 lakh tonnes in 2015-16 sugar season which is slightly higher than the production in previous year. Over all sugar production in the country has declined 33 lakh tonnes at 250 lakh tonnes in 2015-16 sugar season when compared to 283 lakh tonnes produced in the corresponding period last year,” Kuvedia informed.

Sugar prices have already gone up due to less supply and constant demand. The prices have increased 22.3% y-o-y in May 2016 as per the inflation rate based on wholesale price index (WPI). The price rise was 16.07% and 9.05% in the months of April and March respectively. According to industry analysts, this could lead the country to import sugar for the first time in the past six years.

The Union government is closely monitoring the sugar prices. India has displaced around 16 lakh tonnes sugar in the current year. In order to keep a check on the rising prices, it has recently imposed 20% export duty on sugar. This would almost stop the sugar exports from the country. The government has also fixed the stockholding limit at 5,000 quintals per trader. Moreover, it has withdrawn a law that mandates sugar mills to export surpluses.

Predicting further price hike, Kuvedia said, “With the efforts of government, sugar prices may stabilise until the festive season during September-October. If the monsoon fails and the festive demand is higher, there could be a further increase in the prices of sugar.”

The Dollar Business Bureau - Jun 22, 2016 12:00 IST