Retail sugar prices have risen 8-12% since October, despite normal production, on the back of rising wholesale prices. And the decision to allow speculative trading in sugar can create a further spike in prices in the short to medium term.
In Delhi, sugar prices have increased between Rs 2 and Rs 4 per kg over the last two months. Reason: Between October 15 and December 27, wholesale prices of the sweetener jumped Rs 282 per quintal (100 kg), or nearly 10%.
“Prices have risen mainly because of higher cane prices fixed by the government for farmers,” Abinash Verma, director-general of Indian Sugar Mills Association told HT.
The rise has been gradual, so consumers haven’t felt the pinch. This could change.
India, the world’s largest sugar consumer and second-largest producer, resumed futures trading in sugar after 19 months on Monday after the lifting of a government ban.
“Futures trading is often unfairly blamed for price rise. But allowing it at a time when global prices are high could cause prices to rise. It is unwise to abruptly stop or start futures trading,” said Rajiv Kumar, director-general, FICCI.
In futures trading, buyers and sellers enter into contracts to buy or sell a commodity at a specified future date at an agreed price based on anticipated demand and supply. It leaves room for manipulation if contracts are deliberately set at higher prices. Speculators can hoard the commodity for more profitable futures sales, thereby raising current prices.
Experts have warned that allowing futures trading in sugar at time of pressing global shortages could trigger price volatility in the domestic market.
Current global sugar prices are at a 30-year-high, following weather problems in Brazil, the world’s largest exporter.
In the current sugar year (October ’10-September ’11), India hopes to be left with surplus 2 million tonnes. With rising demand, millers could be encouraged to export surplus, pushing up prices in futures market. A government inquiry in 2008, however, found no link between price rise and futures trading.