Mumbai: Sugar exporters around the world and speculators in the futures market closely watching developments in India have more than one reason to smile. While they are sanguine the world's largest consumer will be forced to import not less than five million tonnes of the sweetener in 2009-10, they are becoming increasingly hopeful that their streak of good fortune will continue well into the 2010-11 season also.
For the speculators on the international bourses, the sugar price performance has been exemplary over the last six months, thanks to India and its utterly reactive manner of facing developments in the marketplace. While short-term measures to tide over tough times are necessary, to mistake symptoms for the disease would be naïve. Repeated use of short-term fix is unlikely to make for healthy development of the sugar sector.
With no significant rebound in sugar production envisaged for 2009-10 and nationwide inventory set to decline to alarmingly low levels by the year-end, there is little possibility of global and domestic prices correcting down in a hurry.
As far as 2009-10 is concerned, the numbers are already in place. Acreage is clear; size of cane crop has crystallised; and sugar production can be tentatively estimated (at about 16 million tonnes). Given that consumption is likely to remain stagnant at about 23 mt, the shortfall can only be made through stock drawdowns and imports.
Indeed, because the risks associated with completely drawing down the inventory are too heavy to bear, the shortfall will necessarily have to be made up with imports. In the event, import volumes can zoom to six mt and beyond, depending on New Delhi's comfort level as far as prices are concerned.
The primary responsibility of the Centre is to ensure uninterrupted supplies of sugar through the public distribution system (PDS) at affordable prices. After considerable negotiation with the industry, it is believed, the Government has decided to raise the levy obligation from 10 per cent to 20 per cent. This will translate to about three mt for PDS.
Because inflation hurts households and their family budgets badly, it is necessary to ensure that household consumption is not compromised.
On the other hand, institutional consumers constitute almost 60 per cent of aggregate sugar consumption. Can anything be done to monitor and, if need be, contain use of sugar by large institutional consumers? Is it possible to look at differential pricing for household and industrial consumers?
Plan early
The country has to start planning for 2010-11 season. Will cane regain the one million hectares it lost in 2008-09? Unless area under cane cultivation bounces back to above five million hectares, sugar shortage in the country is unlikely to ease .
It may not be easy though. As at the end of September, large parts of the country covering central and northern regions face moisture-stress. Cumulative rainfall deficiency is over 20 per cent of the long period average. Many cane growing States are reeling under drought-like situation. On current reckoning, the prospects for planting the next cane crop over the next three to six months do not appear very encouraging. In the event, any optimism over the cane crop of 2010-11 may prove to be misplaced.
Cane growers have been an unhappy lot last two years because of uncertainty relating to cane pricing and accumulation of large cane arrears.
As liquidity in their hands failed to improve as per expectation, it was reflected in acreage numbers.
If the policymakers and the industry are serious about expanding cane acreage to its previous level of five million hectares, a small window of opportunity is available now. Over the next two months, ways should be seriously explored to clear all outstanding dues. Disputes will have to be settled expeditiously.
The governments - Centre and respective States - will have to work in tandem. In settling cane arrears, intransigence by sugar mills should not be tolerated. However, knowing policymaking in the country and diverse pulls and pressures it is subjected to, it would be too ambitious to expect that a solution would be found soon.
That brings us back to sugar exporters around the world and speculators on the bourses. They are displaying increasing signs of confidence about India's incapability to fight the current shortage effectively and at the same time plan for the future.
- G. Chandrashekhar
The Hindu Business Line
Oct. 02, 2009
