In a sensible move, the Government has decided to allow the export of 10 lakh tonnes of sugar at the beginning of the season — possibly the first instalment — in the wake of bright domestic production prospects for season 2011-12. There will surely be some minor differences in output and consumption estimates, but the fact remains that the country is going to enjoy a decent surplus of the sweetener in the months ahead.

The less-fortunate part is that India's sugar exports will take place at a time when the world market is faced with surplus sugar of around 6.5 million tonnes for 2011-12, and there has been a broad-based commodity sell-off in the global markets which has exerted severe downward pressure on prices including sugar.

So, India's announcement to allow export has the potential to further weaken the world prices and in turn the export value in dollar terms. The silver-lining in this exercise is the recent depreciation of the rupee. If the rupee continues to remain weak and the exchange rate stays below Rs 50 to a US dollar for some time as is widely expected, exporters will find some relief in the unit value realisation in rupee terms.

Given the global cues and domestic market fundamentals, announcement of ten lakh tonnes export is unlikely to push domestic sugar prices higher markedly in the near-term. Seasonal supply pressure will cap the upside. While the underlying sentiment will be bolstered, there is nothing to suggest any unmanageable spurt in wholesale sugar prices at least until the end of March 2012.
Domestic sugar prices

On the other hand, exports will provide the much-needed floor of support for domestic sugar prices. The rates are likely to stay at levels that are at once consumer-friendly and producer-supportive. The domestic price direction beyond March 2012 will be influenced by cane planting for the next season and developments if any on the international front, including those in Brazil — the world's largest producer and exporter.

For 2011-12, the domestic sugar industry has estimated the production at 26 ml.t; consumption at 22 ml.t and opening stocks at 5.8 ml.t. These numbers could eventually turn out to be slightly different. It is possible that production estimate and opening stocks are overstated by one million tonnes each and consumption estimate understated by one million tonnes.

Given the propensity of our sugar sector data to undergo rapid changes, the Government has be sensible in allowing 10 lakh tonnes, perhaps as the first instalment. It is necessary to closely monitor the market conditions and obtain more reliable numbers for taking an informed decision about further exports in the coming months.

source: thehindubusinessline

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