DESPITE SLUMP, DOMESTIC SUGAR DEMAND RISES

New Delhi: The shortfall in India's sugar crop drove global prices to six-months highs last month, but longer-term investors should be watching an even more bullish trend, unstoppable demand growth in the world's top consumer.

With a deeply embedded sweet-tooth culture that accounts for a tiny share of the typical family's food budget, India's demand for sugar is said to be nearly recession proof; and growth is quickening as the country's rural majority - too poor in the past to indulge- taste more of the sweeter things in life.

Those trends may spell more volatile years ahead for sugar traders more focused than ever before on India, which has turned abruptly from exporter to importer this year as output halves from its peak two years ago after sugarcane crops were squeezed.

To meet the shortage, India eased imports of raws in February and on Monday announced that it would allow tax-free import of up to 1 million tonne of white sugar, news that may stoke fresh gains in London futures already up 27% this year.

Sugar is the cheapest source of energy in India. For a low-income family, it is the only source of energy because it is very cheap, said Meka Narasimha Rao, an official at the Indian Sugar Mills Association (ISMA).

Sales of ice creams, soft drinks, chocolates and cakes have surged as people thronged to eateries in new, swanky malls that have come up in recent years even in smaller cities, encouraging firms like unlisted Kwality Group to expand. "The industry trend shows a growth of 22% in our business over the last year and we see the whole pattern quite positive for our industry and hence our expansion plans," said Nitin Luthra, chief executive of Kwality.

Sugar demand is also being fuelled by higher incomes in rural areas. Farm incomes have risen, helped by generous increased in state-set prices for grains, helping even motorcycle and mobile phone firms report handsome gains in rural areas that appear to be better insulated from the global recession.

- Reuters
(The Financial Express: 14.4.2009)