The Hindu Business Line : Bulk buyers to bear brunt of sugar price rise

THE ordinary middle class housewife may have a lot to complain about sugar turning dearer, particularly over the last one month. But in terms of sheer economic impact, it is not the retail households but the bulk industrial consumer who would bear the real brunt of spiralling prices.

Currently, of the roughly 80 lakh tonnes (lt) of sugar that is consumed in the country, only about a quarter is accounted for by the retail segment. Since December 1, sugar prices have spurted by about Rs 3.25 a kg. Given that an average family consumes 3-4 kg of sugar every month, even an increase of this level would translate into an extra outgo of Rs 10-13. Seen in relation to the household's monthly income or even its total grocery bill, this would not amount to much in real terms.

But the same does not hold true for bulk consumers. These include, first of all, the unorganised segment, comprising halwais and mithaiwalas (sweetmeat makers), who consume an estimated 55 per cent of the country's sugar. For them, sugar is the key raw material ingredient, similar to what steel is to the auto industry.

The same situation applies for large industrial consumers — manufacturers of soft drinks, biscuits, ice cream, chocolate and other confectioneries — who make up the remaining 20 per cent market. Coca Cola India alone, for instance, buys over two lt of sugar annually. Every Re one a kg increase in sugar prices, thus, means an additional expenditure of Rs 20 crore, which is roughly a third of its yearly advertising budget! Ditto for its arch-rival, PepsiCo, which is slated to purchase 1.5 lt this year. At current wholesale prices of Rs 19 a kg, the value of sugar purchases by the two multinationals comes to a hefty Rs 670 crore every year.

If the last month or so has been bitter for the cola majors, it would not be different either for the big chocolate or biscuit makers. Nestle India Ltd, as per its Annual Report for 2003, consumed 32,331 tonnes of sugar, up from 29,407 tonnes in 2002. Britannia Industries Ltd, on the other hand, increased its annual sugar purchases from 57,000 tonnes in 2002-03 to over 68,000 tonnes during the last fiscal. For the country's No. 1 biscuit manufacturer, a Rs 3 a kg increase in sugar prices would result in a setback of over Rs 20 crore.

Among other large sugar buyers, Cadbury India is reckoned to annually consume around 20,000 tonnes, while Perfetti Van Melle India (which owns the Alpenliebe brand) buys up to 8,000 tonnes and Lotte India (formerly Parrys Confectioneries) another 6,000 tonnes.

While soaring sugar prices are likely to emerge as a major political weapon for the Opposition — who would seek to tap middle class discontent on the issue — the fact of the matter is that the real loser right now is the bulk consumer of the commodity.

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