Reacting to the recent surge in sugar prices, the government has issued notices to 250 sugar mills, seeking details of the quantity sold from the 2 million tonnes buffer stock with them.

"These mills have been given 10 days, beginning August 13, to file returns of the quantity sold from the buffer stock. If they do not comply with the directive, we will take action against the defaulters," said a government official.

The buffer stock was created for a period of one year, beginning April 2007. In April 2008, the government decided to allow mills to sell 2 million tonnes sugar from this stock between May and September. But now it fears that some mills have not sold enough in order to keep the prices high.

These buffer stocks are maintained by the mills, though the government pays the carrying cost and the interest thereon.

All mills had been asked to file details of the quantity sold from the buffer by the 10th day of each month. However, about 250 mills have not followed this direction.

Industry sources said the government might convert the unsold sugar from the buffer into levy stock that is sold through the public distribution system at lower prices. Sugar prices have moved up by almost 25 per cent to Rs 1,800 a quintal since mid-July, despite the allocation of 4.8 million tonnes domestic sale quota to sugar mills for the current quarter.

Therefore, on August 9, the government decided to release additional 500,000 tonnes for the remaining period of the quarter.

Sugar output is projected to fall significantly in the 2008-09 season (October 2008 to May 2009). The food ministry has, in consultations with the cane commissioners of major sugar producing states, arrived at a provisional production estimate of 22 million tonnes for the 2008-09 season.

Output in the current season is estimated at 26.5 million tonnes.

Along with an estimated carryover of 11 million tonnes from the current season, an output of 22 million tonnes would imply a total availability of 33 million tonnes for the 2008-09 season, as against the consumption demand of 22 million tonnes.

Sugar, as a commodity, has always been vulnerable to immediate government action because of the high weight allotted to it in the wholesale price index inflation.

The sweetener's weight in the WPI at 3.62 per cent is more than cement's 1.73 per cent, wheat's 1.38 per cent and just lower than iron and steel's combined weight of 3.64 per cent.

Inflation for the week ended August 12 stood at a new 16-year high of 12.44 per cent.

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