India’s sugar output will likely drop 5.2% in the next marketing year starting October 1 due to dry spells in parts of Maharashtra and Tamil Nadu, but production will still exceed consumption, a top industry body said on Tuesday.
Sugar output in the world's second-largest producer may touch 23.70 million tonne in 2013-14 compared with 25 million tonne a year before, the Indian Sugar Mills Association (ISMA) has forecast. The country usually consumes 21-23
million tonne of sugar a year.
The country is also expected to pile up surplus stocks of eight million tonne in the beginning of the next marketing year, which will keep supplies steady and prevent any irrational spiral in prices, according to industry executives. Wholesale prices of sugar have dropped by roughly 10% in the past 6-7 months due to ample stocks.
ISMA has also predicted a 1.5% drop in areas under the cane crop in 2013-14 at 5.15 million hectare. The cane planting forecast, however, is 8% higher than the agriculture ministry's estimate until June 26.
"The difference might be due to the fact that the ministry of agriculture's reported figures are based on a still-ongoing field survey in a couple of states like Uttar Pradesh, Bihar and other sub-tropical zones, where the crushing season last year (2012-13) started late than usual and, therefore, the survey is still not complete," ISMA said in a statement.
ISMA has predicted that Uttar Pradesh will have record sugarcane acreage in this season — about 3.1% higher than last year — despite the mills having piled up huge cane arrears of about R4,000 crore in July. This is because sugarcane fetched much higher returns than competing crops such as wheat and paddy, thanks to a 17% hike in the benchmark price fixed by Uttar Pradesh for 2012-13. Other sub-tropical states, like Haryana, Bihar and Madhya Pradesh, are also showing an increase in sugarcane acreage over the last year.
"However, due to drought in Maharashtra last year, there has been lower cane sowing there, and it is estimated that there would be a 12.5% drop in sugarcane crop acreage over the last year," ISMA said. The impact of last year's lower rainfall in the state on the 15-18 month duration crop has hurt overall acreage in 2013-14 as well, it added. Similarly, cane area is expected to drop by around 8% in Karnataka. However, planting in Tamil Nadu may be affected the worst, with a 15-16% fall in area in 2013-14, thanks to lower rainfall during the south-west monsoon season (June- September) and the north-east monsoon season
(October-December) in 2012-13.
ISMA will review the country's production estimate before the commencement of cane-crushing around Diwali.
‘Sugar import duty hike inadequate’
The hike in the import duty on both raw and refined sugar to 15% from 10%, notified late Monday, is “too little and too late”, ISMA said. While imports are still viable due to falling prices abroad, the government needs to checks purchases from overseas to trim its current account deficit, which is also stoking the depreciation of the rupee, it said.
"Even though the rupee has depreciated against the dollar, the Brazilian real has also depreciated similarly. Therefore, the weaker rupee has not made raw sugar imports coming from Brazil unviable due to this small increase in the duty. There is so much sugar within the country that duty needs to be raised to a level of around 30-40% to totally check imports," the association said.
Significantly, while the rupee has weakened by 12.3% against the dollar since May, the Brazilian real has depreciated 13% against the greeback. Moreover, the customs duty on sugar is among the lowest among farm and food items, compared with 100% on tea, 70% on husked rice and 50% on maize.
Even if global raw sugar prices rise to 17 cents a kg, each tonne of sugar processed from the imported raw sweetener would cost roughly R33,000 in the domestic market for domestic refiners closer to the port, factoring in the costs of purchase, revised duty, handling, transportation and refining, said an industry executive. This means raw sugar imports are still viable as the cost of white sugar production from local cane in Uttar Pradesh is R35,000 per tonne. Raw sugar prices on the ICE were ruling at 16.37 cents per lb on Tuesday.
As much as 6,75,000 tonne of raw and white sugar has landed in the country. A subdued trend in sugar prices on international futures markets suggests that imports may rise in the coming days while another round of hike in cane prices in 2013-14 by states like Uttar Pradesh will make it even harder for mills to cope with the soaring cost of production, industry executives said last week.