Sugar prices to remain firm in the year 2009-10

Over the past few days, sugar prices shot up on fall in production and ever increasing demand. Nearing festivals and wedding season has given a boost to the rising prices. Moreover, with the imported raw sugar lying idle at ports as a result of UP government not allowing its mills to process it unless crushing in the state is over, is also making sugar pricier. Mills owners also attribute the rising prices on lower availability of sugar in the market. The Central Government has made available 16.39 lakh tonnes of sugar for the month of January which the market participants feel is not enough to meet the domestic demand. Also, a high international price is also fueling the price rise across the country.

Sugar prices crossed the psychological mark of Rs.40 per kg last week in the retail market. Prices had been firm throughout the year 2008-09 on mismatch of demand and supply. Prices had been ruling over Rs.30 per kg in the retail for the last one year and the consumers are now more or less habited to paying the price. Although, the ministries concerned with the price rise has been ensuring people that every thing would be fine in the coming days, as steps are being taken to ensure that prices do not keep touching new heights. But, the fact is that prices are not expected to come down soon as prices are determined by demand and supply situation. As far as supply is concerned, it may increase in the short term and prices may soften a bit, however, overall production is still estimated to remain around 160 lakh tonnes which is much lower than actual demand for sugar.

According to Food and Agriculture Minister Sharad Pawar, India is expected to produce only 150 to 160 lakh tonnes of sugar in 2009-10 and the present firmness in the sugar price would remain for a year. The estimated production in the year 2008-09 was 145 lakh tonnes.

The rise in production will be mainly because of higher diversion of sugarcane to the mills manufacturing sugar. Last year, apart from monsoon playing havoc on sugar cane production, diversion of sugarcane to the khandsari and gur manufacturers were other factors that supported higher sugar prices. Although, this year the administration has taken some steps in this regard, yet, diversion cannot be ruled out. Farmers sell their crop to khandsari and gur manufacturers as they get instant payment on delivery unlike, in sugar mills, where arrears are paid later after realization of sugar. In October 2009, Venus Sugar Ltd in Uttar Pradesh (UP) had secured a Court order restraining the operation of kolhus (manufacturers of gur) in the cane area assigned to it by the State Government. Further, sugar mills located in Uttar Pradesh are paying around Rs.220 per quintal for cane purchased by them against Centre’s Fair and Remunerative Price of Rs.129 per quintal.

Sugar production in Maharashtra is set to rise marginally this season on higher cane crushing. The state is likely to produce 48 lakh tonnes in the sugar year 2009/10 that began in October, slightly higher from 46 lakh tonnes produced a year ago. Although, the state is expected to crush more sugarcane this year, however, production would rise marginally on fall in the sugar recovery. In the first quarter of the sugar season (October to December) millers have produced 22 lakh tonnes of sugar which is 2.8 percent higher compared to last year’s corresponding figure.

However, production in Uttar Pradesh is expected to remain flat this year due to a number of causes. First, delay in the start of crushing will affect the recovery of sugar in the state. Second, though this time less sugar cane would be diverted towards jaggery manufacturing yet, bad monsoon had already affected the cane production in the state. Third, the UP government ban on imports of raw sugar following protests by farmers who said overseas purchases suppressed cane prices and curtailed their bargaining power with mills has locked up 15 lakh tonnes of raw sugar in ports. As of now mills in Uttar Pradesh, India's second-largest producer churned out 17 lakh tonnes of sugar against 18 lakh tonnes last year in the same period (October to December).

India is expected to consume over 230 lakh tonnes of sugar in 2009-10. The deficit would have to be met by imports and from last year’s buffer stocks. However, India doesn’t have enough buffer stocks {The current 2009-10 season (October-September) opened with domestic white sugar stocks of around 31 lakh tonnes.} to bridge the widening gap between fall in production and expected demand. Even if the country manages to bring some stability in the prices using the stocks that it has with it right now, it would definitely face shortage in the next year as there would be hardly any carry over stocks. Moreover, record global prices do not sound good for Indian consumers who will have to shell out more this year to purchase sugar. Sugar prices have already crossed the Rs.40 per kg in the retail market and the next target for the present Central Government is to watch consumers pay Rs.50 per kg in the coming days.