Thanks to the Centre's announcement of a five-per cent import duty and Rs 850 per tonne countervailing duty, prices have fallen sharply by Rs 100 per quintal at Rs 1,370 last week. The industry is divided over the reason for such a sharp fall. A section of the industry blames the co-operatives for pulling down prices. Cash flow problems are causing panic selling pulling prices down, said an industry insider.

Highly placed sources from sugar co-operatives deny panic selling. According to them prices are determined by market forces. Significant inflow of stocks from Maharashtra and Karnataka is the main cause for the downtrend. The mills in these states being in the high recovery areas offer sugar at prices affordable to haul it and sell in Tamil Nadu. But many sugar dealers do not agree.They say that the price differential for sugarto flow in from Maharashtra has to be at least Rs 150 per quintal. It is now in the range of Rs 60. Under these circumstances the freight cost cannot be recovered.

Interestingly, they blame imports for the fall in prices, especially after the announcement of import duties. According to them, a significant quantity of sugar has reached Kochi port just prior to the announcement of duties and they are now feeding the Kerala market which otherwise would have gone from Tamil Nadu. These have caused a downward trend in the prices. As the entire sale of 18 co-operative factories in the state are decided in a centralised manner their action has a significant impact on prices.

For other sugar producing states any realisation above Rs 1,200 per quintal is profits whereas in Tamil Nadu cost of production alone is in the range of Rs 1,250 to Rs 1,300 per quintal, they say. Some also add that the increase in prices in the first place was more due to sentimental reasons rather than any genuine demand-supply factor andhence a correction was expected.

Moreover, the financial position of the dealers are also said to be under strain as a result of which they have reduced their offtake from the mills. Market in general expects prices to rule at the same levels in the next few weeks as speculators who normally rush to make purchases once there is a significant drop are yet to enter the market.