Global sugar prices have been declining in 2013 because of a comfortable supply situation in producing countries. In recent months, the depreciation of currencies such as the Brazilian real or even the Indian rupee against the dollar has made exports more viable. Now, high government-mandated procurement prices have ensured that Indian sugar prices have remained relatively stable, despite comfortable supply levels.

The south-central region of Brazil has seen sugarcane output jump by 56.9% in the 2013-14 sugar season (April-March) so far, compared to the previous corresponding period. This has also been accompanied by a 4.8% increase in the recovery rate of sugar from cane. That’s why, despite a 3.7 percentage point shift in the product mix in favour of ethanol, sugar output in the region is up by 51%. But this growth rate is also partly attributable to a low base effect due to a decline in output in this period in 2013. A report by the US Food and Agricultural Service has projected the country’s raw sugar output to increase by 4.7% in the season. Other sugar growing countries too are seeing a comfortable supply situation.

The stage then had been set for a weak season for international sugar prices. Thus, India’s wholesale sugar prices are down by 5.7% since the start of 2013, while international raw sugar prices are down by 13.5%. The differential has meant that companies with standalone refineries, which can import raw sugar and process them into white sugar, have become more active. Shree Renuka Sugars Ltd is one of them.

The domestic industry association has been asking for higher duties for some time now, and the government appears to be finally paying heed. But the level of protection may prove inadequate. International prices may fall further or the Brazilian currency’s depreciation versus the dollar may ensure that exports still remain remunerative.

Now, what sugar mills are asking for is: domestic sugar prices should go up but import duties should be high enough to deter imports from entering the market to take advantage of higher market prices. Exports of sugar can further tighten supplies. These expectations may seem unreasonable but are understandable given the high procurement costs of sugar, especially in Uttar Pradesh. The timing of the duty increase coincides with a period when there will be a seasonal spurt in the demand for sugar, as we enter the festival season.

The industry’s thinking may be logical but is self-serving. Unfortunately for them, the government may have different priorities. It is already coming under flak for rising vegetable prices. If sugar prices go up during the festival season, it is likely to make headlines and opposition parties will spare no effort in blaming the government. It may work also, considering how touchy Indians are about the price of the sugar they put in their tea (never mind that sugar retails for Rs.40 a kg and loose tea for Rs.280 a kg in Mumbai). The industry may have to bide its time till elections get over to seek an enduring solution to its problems.