Sugar prices, already at record highs, are set to rise further. The food ministry has decided to raise the levy price at which it buys sugar from mills to supply the public distribution system by 50 per cent in Maharashtra and 63 per cent in Uttar Pradesh for the new sugar season starting next month.
The two states account for 55 per cent of India's sugar output. Prices have also been revised for other sugar purchasing states.
With production hitting a three-year low of 14.7 million tonnes in this sugar season (October to September), the government is also expected to double the levy quota for the PDS from 10 to 20 per cent to tide over shortages.
The levy price and quota act as a notional benchmark for open market sugar prices, which have doubled to Rs 34 to Rs 35 a kg since last September, owing to a global shortage. The price of levy sugar is half that of the open market price.
The decision to revise the price, which has been unchanged for over seven years, comes after a Supreme Court order last year directing the government to revise prices and announce a different price for mills that pay a state advised price to buy sugarcane from farmers. The price of levy sugar was so far being decided on the basis of statutory minimum price, which is a central government price, and is generally lower than the SAP.
The new levy price for UP mills will, therefore, be higher as they pay SAP, while mills in Maharashtra pay SMP. The decision to have a SAP-based price will benefit top companies like Bajaj Hindusthan and Balrampur Chini, who have all their operations in UP.
Currently, the levy price ranges between Rs 1,275 to Rs 1,383 a quintal (100 kg) in UP, the country's second-largest producer. In Maharashtra, the largest producing state, the price ranges from Rs 1,318 to
Rs 1,344. The new price is likely to be around Rs 2,087 a quintal for the UP mills and Rs 1,984 for the Maharashtra mills for the 2009-10 season.
The sharp revision in levy price will have long-term implication for sugar mills, especially in the years when market prices come under pressure due to a glut. In 2007-08, for instance, open market prices had crashed to Rs 1,200-1,300 a quintal on record output, which was even lower than the levy price.
Mills, however, are not worried by the prospect of a rising levy quota. "Even if the levy quota goes up to 20 per cent, mills only stand to gain over previous years, since levy realisation would also go up. We had been losing heavily on the levy sugar all these years," said a UP miller.
