Indian sugar mills association

As reservoirs run low, farmers slash sugarcane planting

Date:	13 Jan 2016

Source:	The Economic Times

Reporter:	Reuters

News ID:	5154

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SOLAPUR: Farmers in top sugar-growing state of Maharashtra are being forced to replace cane with less water intensive crops, as a scorching drought drives authorities to hold back water from dams.

The drop in plantings for the 2016/17 season - which one official estimated means acreage could fall by about a third - comes after a faltering monsoon has damaged thousands of hectares of cane in the world's second-biggest producer.

India's sugar output risks dropping below consumption for the first time in seven years, threatening to cut exports and boost global prices, particularly if imports are needed for the first time since 2008/09.

Shankar Tiwari, a farmer in Maharashtra, has for the first time in nearly a decade planted sorghum on his two acres of land instead of sugar cane due to the drought.

"For the last three months, the government has not released water from dams. How can we plant sugar cane?" asked Tiwari, who has relied on canal irrigation to cultivate cane in the Solapur district of Maharashtra, 400 km (245 miles) south-east of Mumbai.

Maharashtra, Karnataka and Uttar Pradesh account for nearly 80 per cent of India's sugar production.

After a series of bumper harvests, the states have been hit by the first back-to-back drought in nearly three decades, prompting authorities to divert water from agriculture.

India's main reservoirs are at 44 per cent of capacity, compared with a ten-year average of 58 per cent. Some reservoirs in Maharashtra are holding just 8 per cent of capacity, compared with a ten-year average of 50 per cent.

"Going by the current trend, it seems the cane area will be at least 35 per cent lower next season. We will have a better understanding only in March when farmers finish planting," said a senior Maharashtra official, who declined to be named.

Cane cultivation is mostly done from October to March, but many farmers have already switched to other crops.

GLOBAL PRICES

India's annual sugar demand is around 26 million tonnes, but B.B. Thombre, president of the Western India Sugar Mills Association, said the country could struggle to produce 24 million tonnes next year

This could provide a boost to global prices. March ICE raw sugar futures hit a two-month low at 13.93 cents a lb this week on stronger Brazilian production.

But in 2008/09, when monsoon rains also failed, fluctuations in Maharashtra's sugar output forced India to become a net importer, triggering a rally in global prices to 30-year highs.

Thombre said Maharashtra could surprise the market in the same way in the upcoming season starting in October, estimating production of just 5.5 million tonnes, down from this season's estimate of 7.5 million tonnes.

Last season, the state produced a record 10.5 million tonnes.

Indian mills have been exporting sugar as the government has made it mandatory to trim stockpiles built up in the last five years.

But exports are likely to become uncompetitive from March onwards once local prices rise, said Ashwini Bansod, a senior analyst at Phillip Commodities India Pvt Ltd.

While India will not need to import in the current season ending on September 30, due to carry forward stocks of 9.1 million tonnes from the last season, imports may be required next season to meet domestic requirements and control prices, said a Mumbai-based dealer with a global trading firm.

"If India starts importing, then a rally is assured in the global market," the dealer said.

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