When sugar turns 'sour'
Sunday, 13 September 2009
Shahiduzzaman Khan
Belying all expectations and 'wise' measures, sugar price is jumping everyday across the country. A section of unscrupulous traders, according to reports, are creating an artificial crisis under the pretext of price hike on the international market. No mechanism has worked here to contain the price. The price is now hovering around Tk 60 a kilogramme (kg) at retail level in the city market, registering about 25 per cent rise in a week. Even in many city markets, the availability of sugar has gone down to a bare minimum and the prices are showing varying trends from time to time.
Market watchers contend that the rise was largely fuelled by panic buying mainly by retailers and a section of consumers speculating further rise. They also tagged the price spiral to a seasonal factor such as rise in demand during Ramadan. Many of the retailers and other traders were reported to be rushing to procure additional quantity of sugar to bag extra profit from possible price hike in the coming days, especially on the occasion of Eid. Many wholesalers have also stockpiled sugar to make a windfall profit during Eid-ul Fitr. The retailers accused the wholesalers for not selling sugar to them. The wholesalers, on the other hand, claimed that the refiners and the importers are not supplying sugar to create an artificial crisis during Ramadan when total consumption of sugar increases by additional 50,000 tonnes. This is again a blame-game traded every time by the wholesalers and the retailers, a common practice when there is an instability in the market.
Price of sugar has been on a gradual rise on the domestic market, influenced by rise in its price on the international market due to supply shortfall on account of drought in India and slow harvest in Brazil, two biggest sugar producing nations. Bangladesh meets more than 90 percent of its annual sugar demand through import. To give respite to the consumers from the price shock of international market, the government withdrew import duty on unrefined sugar and reduced duty on refined sugar last month. Although the refiners promised to sell sugar at Tk 39 per kg after duty cut, the price went up further instead of fall. Bangladesh Wholesale Sugar Merchants Association claimed that there was a shortage of refined sugar on the wholesale market compared with the demand, which caused rise in price.
The refiners, however, turned down the argument of rise in demand for sugar, and said they are supplying about 4,000 tonnes a day, a portion of which is going to Trading Corporation of Bangladesh (TCB) for open market operation. They attributed panic buying among retailers behind the rise in sugar price. The refiners also held the traders with the D/O (demand order), who buy sugar directly from mills, responsible for its recent price hike. They claimed that as the price of raw sugar had risen considerably in the international markets, the import cost for each kg of raw sugar including cost and freight charge, would stand at over Tk 38 in September shipments. Based on this week's world market price, millers said cost after refining would be Tk 44.85-Tk 45.85 each kg.
Two months ago, the TCB took a delayed move to import 12,500 tonnes of sugar from Thailand targeting the month of Ramadan. But the supply of sugar is still uncertain as the state-run organisation is yet to receive consignments. Reports say, it would take some more days for the commodity to arrive in the government warehouses from the port of origin. The reason for such a prolonged delay is not known.
The annual demand for sugar in Bangladesh ranges from 1.2 million tonnes to 1.3 million tonnes. During Ramadan, its consumption peaks. Due to deplorable condition of the country's sugar mills, only a fraction of the total demand of sugar could be produced locally. There was a time when sugar was exported from Bangladesh. Now the situation is completely reverse. Mismanagement, corruption had eaten into the vitals of the country's state-owned sugar mills. Some of the mills have been running on losses while some others are on the verge of closure. No BMRE (balancing, modernisation, renovation and expansion) was done since setting up of these mills. There was ample scope for improvement in sugar production in the country, yet no effective measures were taken by the successive governments.
Country's sugar price situation worsened further as production by state-run mills dived to more than half in 2008-09 from a year ago because of low sugarcane production. During the current fiscal year, the target of sugar production has been higher than the previous year's actual production of around 80,000 tonnes. But the amount of local production is less than one-tenth of total annual demand.
Global sugar prices are likely to remain high in the months ahead, making its import costlier than it is now. After a year of shortfall in production, droughts due to low monsoon rain dampen output prospect in the biggest sugar-consuming nation, India. Once-sugar exporter India would buy the commodity on the global market at higher quantity to offset its production shortfall of more than 6.0 million tonnes to meet domestic consumption requirement of over 22 million tonnes. Supply of sugar from the largest grower Brazil is also expected to remain under pressure as farmers and millers find cane too wet to harvest and mill because of heavy rainfall in parts of the Latin American country.
As the global market is expected to remain volatile for an extended period of time, the government should think of preparing some contingency plans. Prices of major food items, edible and fuel oils had undergone major price shocks in the international markets in the first half of 2008. The interim caretaker government failed to contain the prices of those essential items, despite their good efforts and intentions. That is a grim reminder of the past experiences.
Some market analysts are of the opinion that no country can control the prices of globally traded items they import. What the government needs to do is to ensure that the country's competition laws reduce the scope for syndicates and price fixing so that markets can operate efficiently. They say the authorities should do two things first: fixing the value chain and giving guarantee to the supply side. There should be reduction in costs of transaction, logistics and taxation to ensure that the consumers get sugar at the lowest sustainable price. Market price should be allowed to be set fairly and efficiently rather than attempt to control it, they added.
.........................................................
szkhan@thefinancialexpress-bd.com
Belying all expectations and 'wise' measures, sugar price is jumping everyday across the country. A section of unscrupulous traders, according to reports, are creating an artificial crisis under the pretext of price hike on the international market. No mechanism has worked here to contain the price. The price is now hovering around Tk 60 a kilogramme (kg) at retail level in the city market, registering about 25 per cent rise in a week. Even in many city markets, the availability of sugar has gone down to a bare minimum and the prices are showing varying trends from time to time.
Market watchers contend that the rise was largely fuelled by panic buying mainly by retailers and a section of consumers speculating further rise. They also tagged the price spiral to a seasonal factor such as rise in demand during Ramadan. Many of the retailers and other traders were reported to be rushing to procure additional quantity of sugar to bag extra profit from possible price hike in the coming days, especially on the occasion of Eid. Many wholesalers have also stockpiled sugar to make a windfall profit during Eid-ul Fitr. The retailers accused the wholesalers for not selling sugar to them. The wholesalers, on the other hand, claimed that the refiners and the importers are not supplying sugar to create an artificial crisis during Ramadan when total consumption of sugar increases by additional 50,000 tonnes. This is again a blame-game traded every time by the wholesalers and the retailers, a common practice when there is an instability in the market.
Price of sugar has been on a gradual rise on the domestic market, influenced by rise in its price on the international market due to supply shortfall on account of drought in India and slow harvest in Brazil, two biggest sugar producing nations. Bangladesh meets more than 90 percent of its annual sugar demand through import. To give respite to the consumers from the price shock of international market, the government withdrew import duty on unrefined sugar and reduced duty on refined sugar last month. Although the refiners promised to sell sugar at Tk 39 per kg after duty cut, the price went up further instead of fall. Bangladesh Wholesale Sugar Merchants Association claimed that there was a shortage of refined sugar on the wholesale market compared with the demand, which caused rise in price.
The refiners, however, turned down the argument of rise in demand for sugar, and said they are supplying about 4,000 tonnes a day, a portion of which is going to Trading Corporation of Bangladesh (TCB) for open market operation. They attributed panic buying among retailers behind the rise in sugar price. The refiners also held the traders with the D/O (demand order), who buy sugar directly from mills, responsible for its recent price hike. They claimed that as the price of raw sugar had risen considerably in the international markets, the import cost for each kg of raw sugar including cost and freight charge, would stand at over Tk 38 in September shipments. Based on this week's world market price, millers said cost after refining would be Tk 44.85-Tk 45.85 each kg.
Two months ago, the TCB took a delayed move to import 12,500 tonnes of sugar from Thailand targeting the month of Ramadan. But the supply of sugar is still uncertain as the state-run organisation is yet to receive consignments. Reports say, it would take some more days for the commodity to arrive in the government warehouses from the port of origin. The reason for such a prolonged delay is not known.
The annual demand for sugar in Bangladesh ranges from 1.2 million tonnes to 1.3 million tonnes. During Ramadan, its consumption peaks. Due to deplorable condition of the country's sugar mills, only a fraction of the total demand of sugar could be produced locally. There was a time when sugar was exported from Bangladesh. Now the situation is completely reverse. Mismanagement, corruption had eaten into the vitals of the country's state-owned sugar mills. Some of the mills have been running on losses while some others are on the verge of closure. No BMRE (balancing, modernisation, renovation and expansion) was done since setting up of these mills. There was ample scope for improvement in sugar production in the country, yet no effective measures were taken by the successive governments.
Country's sugar price situation worsened further as production by state-run mills dived to more than half in 2008-09 from a year ago because of low sugarcane production. During the current fiscal year, the target of sugar production has been higher than the previous year's actual production of around 80,000 tonnes. But the amount of local production is less than one-tenth of total annual demand.
Global sugar prices are likely to remain high in the months ahead, making its import costlier than it is now. After a year of shortfall in production, droughts due to low monsoon rain dampen output prospect in the biggest sugar-consuming nation, India. Once-sugar exporter India would buy the commodity on the global market at higher quantity to offset its production shortfall of more than 6.0 million tonnes to meet domestic consumption requirement of over 22 million tonnes. Supply of sugar from the largest grower Brazil is also expected to remain under pressure as farmers and millers find cane too wet to harvest and mill because of heavy rainfall in parts of the Latin American country.
As the global market is expected to remain volatile for an extended period of time, the government should think of preparing some contingency plans. Prices of major food items, edible and fuel oils had undergone major price shocks in the international markets in the first half of 2008. The interim caretaker government failed to contain the prices of those essential items, despite their good efforts and intentions. That is a grim reminder of the past experiences.
Some market analysts are of the opinion that no country can control the prices of globally traded items they import. What the government needs to do is to ensure that the country's competition laws reduce the scope for syndicates and price fixing so that markets can operate efficiently. They say the authorities should do two things first: fixing the value chain and giving guarantee to the supply side. There should be reduction in costs of transaction, logistics and taxation to ensure that the consumers get sugar at the lowest sustainable price. Market price should be allowed to be set fairly and efficiently rather than attempt to control it, they added.
.........................................................
szkhan@thefinancialexpress-bd.com