Sugar price might rule firm, but India will turn net importer

The beleaguered Indian sugar industry finally has something to feel happy about. International Sugar Organisation Executive Director Peter Baron’s comment that “the distinctive global surplus phase has ended and the world market is moving into a deficit phase,” may have brought some relief to them.

Baron said that for the first time in three years, world sugar production will take a knock to 162.3 million tonnes (MT) in 2008-09. At the same time, consumption, keeping in line with the long-term average growth of 2.5 per cent, will rise to 165.9MT.

However, the global deficit will be bigger than what Baron has forecast, since he has assumed a production shortfall of 5.6 MT in India, which will now be 9 MT. He said the deficit will become bigger in the next season. All these are indications that world sugar prices will remain firm.

Meanwhile, this season is proving to be extraordinary for India as factories in major producing states such as Maharashtra, Uttar Pradesh, Punjab and Haryana started running out of cane since the beginning of February.

The sugar industry, mauled by huge losses in the past two years, is now seeing the lowest number of crushing days in recent times due to cane shortage caused by land shift and bad weather. The duration of the crushing periods in the past three seasons ranged from 143 days to 180 days. A bountiful crop of 356 MT allowed the industry an extraordinarily long 180-day crushing period in 2006-07, yielding a record sugar production of 28.33 MT.

Except for those in the South, the other mills in the country will stop crushing in early March. The industry is now reconciled to a major drop in sugar production to 16.5 MT, thanks also to at least 1 per cent dip in sugar recovery from cane. All of this will translate into overhead cost being distributed over significantly lower quantities of sugar. At the same time, factories are not generating enough bagasse and molasses this season to be able to make full use of power cogeneration and ethanol-making capacity in an attempt to derisk the sugar commodity business.

Balrampur Chini, India’s second largest sugar producer, will see nearly a 40 per cent fall in sugar output in 2008-09, according to managing director Vivek Saraogi.

These factors and also the fact that the industry is bearing an extra large burden on cane account – for instance, the UP government has mandated a 12 per cent rise in cane prices to Rs 140 a quintal – should be considered with care as New Delhi gives sugar release orders.

However, this is not the case.

Releases not warranted by market dynamics will stop once the government realises that the “periodic cacophony over prices is orchestrated by industrial consumers accounting for the major portion of the country’s sugar consumption,” says Om Dhanuka, a former Indian Sugar Mills Association (Isma) president. According to latest available data, India’s per capita consumption of sugar is 19.8 kg. But, this will fall drastically if industrial use is segregated.

That Indians consume little sugar has got much to do with their food habit. For the vulnerable sections, sugar is supposed to be available at ration shops. In the circumstances, what needs to be ensured is that the sugar factories earn enough from open market sales, accounting for 90 per cent of production, so that they always have money to clear cane bills in time.

The government owes it to nearly 50 million cane growers to ensure that sugar factories stay in good health to discharge their responsibilities to the farm sector, including extension work. Isma Director General S L Jain claims that India has the potential to become a regular exporter of raw sugar, having established its credentials last season when exports exceeded 5.35 MT in raw value terms.

Not only did we become the world’s second-largest exporter displacing Thailand, our raw sugar quality proved to be so good that the world’s largest refinery in Dubai chose India as the main supplier of the material in preference to Brazil.

It is ironical that this season, we are turning into a net importer of sugar.

Saraogi, as also other industry officials, are not seeing much change in the next season’s crop outlook. Thanks to bumper sugar production in the three seasons to 2007-08, we opened this year with brought forward stocks of nearly 8.1 MT. Since the country will not have this advantage next season, our sugar imports will be much higher in 2009-10.

Still, Jain’s proposition that India could become a regular exporter will hold good, provided farmers are incentivised to bring back the land committed to other crops and crop productivity improves.

source: BS