Ex-mill sugar prices fall 20% as government cracks down on hoarding; new quota system from Sept

Sugar prices are beginning to ease after a sharp spike triggered concerns over domestic availability. The government said on August 28 that ex-mill sugar prices have fallen by around 20% in recent days, while retail prices have also started declining.

The government attributed the recent price surge primarily to hoarding and speculation, rather than an actual shortage. A nationwide physical verification of sugar stocks at mills has found adequate supplies, with some mills holding more sugar than they had declared in their monthly returns.

Fortnightly quota system from September 

To prevent artificial tightening of supplies, the government will replace the existing monthly sugar quota system with a fortnightly allocation system from September.

Under the new system, mills will have to sell at least 40% of their allocation in the first week and the remaining quantity in the succeeding week. The government said the system will allow it to monitor demand and supply more closely, respond faster to changing market conditions and release additional quota whenever necessary.

The move comes after the government found that sugar sold by mills early in the month was, in some cases, being dispatched or lifted by buyers only towards the end of the month. According to the government, this contributed to artificial scarcity in the market.

Sugar must move within seven days 

The government has also directed sugar mills to dispatch sugar within seven days of sale.

The combination of more frequent quota allocation and mandatory dispatch is aimed at speeding up the movement of sugar from mills to dealers and, ultimately, consumers. The government has also advised bulk consumers against accumulating stocks beyond their operational requirements.

The government said additional sugar is also entering the market. Refiners have been permitted to sell converted sugar brought under the Advance Authorisation Scheme, while dealers and bulk consumers holding excess stocks are offloading supplies.

New sugar season to boost supplies 

The supply situation is expected to strengthen further with the start of the new sugar season.

Sugarcane crushing is scheduled to begin from October 15. More than 10 lakh tonnes (10 LMT) of sugar is expected to be produced during October, while production is projected at around 45 LMT in November.

The government has permitted mills to sell sugar produced during October without restriction, allowing new-season output to enter the domestic market quickly.

Earlier production will also add to supplies. Operational mills in Karnataka and Maharashtra are expected to contribute around 2 LMT during September.

Retail prices expected to follow 

While ex-mill prices have already fallen by around 20%, the decline in retail prices is only beginning. The government expects retail prices to follow the downward movement in ex-mill prices as changes move through the supply chain.

The government has assured consumers that there is no shortage of sugar and said measures will be taken to maintain adequate supplies at reasonable prices, particularly ahead of the festive season.