Trade with Commodities: Poll demand for desi liquor takes sugar to dizzy highs

Monday, June 8, 2009

Poll demand for desi liquor takes sugar to dizzy highs

Diversion Of Cane For Jaggery Making Lifts Sugar Price

INCREASED demand for country liquor in the runup to the polls and a concomitant diversion of cane to jaggery units could have led to sugar prices soaring, in turn, forcing the government to suspend futures trading in the sweetener, according to an official closely connected with the commodity markets.
    "It has been observed that diversion of cane to jaggery units tends to increase in election years," said the official on condition of anonymity. "Jaggery units can buy more cane when prices rise as their overheads are substantially lower than those of sugar mills. Country liquor manufacturers, in turn, could have purchased more jaggery to meet demand by political parties, which distribute freebies in order to muster votes. This reduced the amount of cane available for being crushed into sugar."
    Apart from lower acreage, diversion of cane to jaggery and khandsari (unrefined crystallised sugar) units has been blamed for the soaring price of sugar. Sugar at the retail level is currently traded at Rs 27 a kilo, up almost 60% from the same time last year, on the back of an estimated 44% decline in production to 14.7 million tonnes in the current season (October-September). Late last month, commodity markets regulator Forward Markets Commission (FMC) suspended the launch of all new contracts in sugar till December and disallowed traders and speculators from taking fresh positions in the sweetener, that is traded on commodity bourses such as NCDEX and MCX.
    The official has used data from Indian Sugar Mills Association (ISMA) and the ministry of agriculture to boost his claim. Sugar recovery rate over the past six years has averaged around 10.3%, according to ISMA. Cane production data from 2002-03 to 2008-09 by the agriculture ministry and ISMA show that while jaggery units could have consumed anywhere between 20.5% and 31% of cane in non-election years, they probably consumed a greater portion of 40% in 2003-04, in the run-up to Parliamentary elections in April '04; 46% in '04-05 — assembly elections were held in Maharashtra in October 04 ; and a whopping 49% in 2008-09, when the country went to polls.
    However, Vijendra Kumar, chairman of Chamber of Commerce, Harpur, UP — a major jaggery producer, refuted the claim that increased jaggery has gone into liquor making this year. "While it is true that country liquor can be made from jaggery and molasses resulting from khandsari production, gur production all over the country is estimated to be lower by 20% from the previous year," said Mr Kumar. "In UP alone, production has declined 5-10% as the quantity of cane produced this year (290 mt) is substantially lower from last year's production (341 mt)."
    A sugar analyst attributed the cane diversion to the fact that jaggery makers paid the farmers sooner than mills which compensated them for the cane only after the sugar was sold. Also, he said, jaggery units were not bound by the statutory minimum price fixed by the Centre, which meant they could have accessed the cane at cheaper rates than a mill.
    ram .sahgal @timesgroup .com