India moves to cool surging sugar prices as festive demand looms

NEW DELHI: India is moving to boost sugar supplies and curb hoarding after prices surged ahead of the festive season, squeezing consumers and businesses in the world’s largest sugar-consuming country.The government has asked sugar mills to ensure adequate supplies and keep prices at “reasonable” levels, the latest in a series of measures aimed at cooling the market.Retail prices have eased from their recent peak but remain elevated, with demand expected to rise in the run-up to Deepavali in November. WHAT IS DRIVING THE PRICE SPIKE?For Hitesh Choudhary, co-owner of a small chain of traditional Indian sweet shops, the festive period is normally the busiest time of the year. But with sugar considerably more expensive than it was just a couple of months ago, he is bracing for a squeeze on margins.“We are bearing the losses because we can’t increase our prices now with the festive season,” said Choudhary, co-owner of Jodhpur Sweets.Government data shows the all-India average retail price of sugar was around 60 rupees (US$0.63) a kilogram in early September – about 25 per cent higher than in late July.Though prices have come off their peak, they remain well above July levels.The Indian government has attributed the increase to a combination of lower-than-expected domestic production, weather and pest damage to sugarcane, stronger demand ahead of the festive season and tighter global supplies, as well as speculation and hoarding. With sugar considerably more expensive than it was just a couple of months ago, Jodhpur Sweets is bracing for a squeeze on margins. (Image: CNA) Indian research and ratings firm Crisil estimates closing inventories for the current sugar season at around 3.9 million tonnes – 25 per cent lower than the previous season and 40 per cent below the five-year average.“Sugar is a staple. It is consumed by all consumers in India. We have an annual consumption of around 28 million metric tonnes,” said Pushan Sharma, a director at Crisil.“So who it impacts is the consumers. The retail consumers face the price increase and it adds to their food inflation.” The government has rejected claims that the diversion of sugar for ethanol production is behind the price rise. It has also taken steps to increase supplies and discourage hoarding.India has allowed 1 million tonnes of raw sugar to be imported duty-free until the end of October – its first such imports in nearly a decade.The government has also imposed limits on stocks held by dealers and bulk buyers.From Sep 15 until the end of November, the amount dealers can hold across most of India will be halved from 400 to 200 tonnes. PRICES EXPECTED TO REMAIN FIRMThe measures appear to be having some impact.“The fear of any shortage is now going out, so I believe the markets will stabilise and during the festivals, the consumers will get sugar at a reasonable price,” said Deepak Ballani, director general of the Indian Sugar and Bio-Energy Manufacturers Association.“The on-the-ground situation as far as the sugar stocks are concerned, there's absolutely no shortage in the country.”The government says prices charged by sugar mills have fallen by around 20 per cent from their recent highs.Retail prices, however, have eased more slowly. With Deepavali approaching, some industry experts believe the pressure on prices is not over.“We are expecting prices to stay firm in the near term,” said Crisil’s Sharma. “There will be some sentiment impact from the government's measures but it does not materially change the supply-demand dynamics.”He said festive demand would absorb much of the additional imported sugar, meaning prices are likely to remain elevated.“Structurally, we are in a scenario where consumption is increasing steadily but supply is not keeping pace with it,” he said.Over the longer term, Sharma said India needs to increase sugarcane production, including by developing varieties that are more resistant to disease.