Indian Sugar Production May Jump 25% on Plantings

Sugar output in India, the world’s second-biggest producer, may rebound 25 percent next year as farmers boost sugar cane plantings to benefit from a rally in prices, reducing the nation’s reliance on imports.

Production may increase to 20 million metric tons in the year beginning Oct. 1 from 16 million tons this year, S.L. Jain, director general of the Indian Sugar Mills Association, said in a phone interview. The country may still need to import sugar as demand is increasing, he said.

A rebound in Indian output may cool a rally in global prices. Raw sugar has climbed 11 percent this year in New York and refined sugar has advanced 27 percent in London on expectations of a widening shortfall in global supplies.

“Farmers are back to planting sugar cane again, thanks to the good prices they are getting this year,” Jain said from New Delhi. “Increased production will still not be sufficient to meet the rising demand.”

The country’s sugar consumption next year may total 24 million tons compared with 23.5 million this year and stockpiles at the start of next season may be 1.5 million tons, Jain said.

“India will have to import sugar next year,” he said yesterday. “But ‘how much?’ That will depend on prices.”

Mills including Shree Renuka Sugars Ltd. may import 1.5 million tons of raw sugar in the year to Sept. 30 to fill a gap in output, Managing Director Narendra Murkumbi said yesterday.

Duty-Free Imports

The country last month allowed duty-free imports of raw sugar until September for processing and local sale. Buyers must export a similar quantity of refined sugar in two years. Mills have bought 800,000 tons already, Jain said.

The mills association forecast of a recovery in output echoes comments from India’s Agriculture Secretary T. Nanda Kumar, who said last month farmers may increase the area planted with sugar cane because of higher prices.

Sugar on the National Commodity & Derivatives Exchange Ltd. jumped to a record 2,204 rupees per 100 kilograms on Feb. 20 on lower output this year. April delivery sugar fell 0.6 percent yesterday to 2,099 rupees, making the gain for the most active contract 34 percent in the past year.

India’s cane production may drop 17 percent to 290.5 million tons in the year to June as farmers shift to grains, the farm ministry said Feb. 12.

The country’s government should allow mills to sell their entire produce at market prices to enable them to pay farmers a remunerative rate for supplying cane, Jain said.

Welfare Subsidy

Sugar producers can sell 90 percent of their output at market rates, while the government typically fixes the quantity and time of the sale every month. Producers must sell 10 percent to the government at below-market prices for resale to the poor.

“Why should the industry subsidize the government welfare program,” Jain said. “The government should buy the sugar from the open market and encourage more production to achieve sustained self-sufficiency.”

source: bloomberg