NEW DELHI: Sugar could spell the next set of food-inflation woes, as a drought-induced deficit means India may have to turn to imports for the first time in six years.
Prices are fir ming up already. The wholesale inflation rate for May showed sugar prices rose 22% compared to a year-ago period.
Back-to-back droughts have trimmed harvests in two of the country’s biggest producer-states, Maharashtra and Uttar Pradesh. Maharashtra’s sugar is estimated to fall to 6.5 million tonne from 8.3 million tonne a year and UP’s output is estimated to decline to 6.8 million tonne in 2015-16 from 7.1 million tonne in the previous year.
Sugar could spell the next set of food-inflation woes, as a drought-induced deficit means India may have to turn to imports for the first time in six years.
Prices are firming up already. The wholesale inflation rate for May showed sugar prices rose 22% compared to a year-ago period.
India is the world’s secondlargest sugar producer after Brazil, but the largest consumer as well. Household demand accounts for barely 30% of consumption. About 70% of the sweetener goes into food products such as biscuits, beverages and snacks.
Back-to-back droughts have trimmed harvests in two of the country’s biggest producerstates, Maharashtra and Uttar Pradesh. Maharashtra’s output is estimated to fall to 6.5 million tonne from 8.3 million tonne a year earlier, according to a forecast by the Maharashtra State Cooperative Sugar Factories Federation Ltd.
Second-biggest producer UP’s output is estimated to decline to 6.8 million tonne in 2015-16 from 7.1 million tonne in the previous year.
Faced with a high deficit of pulses this year, the Narendra Modi government has publicly stocked over 1 lakh tonne to be distributed at subsidised rates by procuring domestically and through imports. That hasn’t helped cool prices because demand-supply mismatch is high. India doesn’t have a similar buffer stock for sugar.
Fresh estimates from the start of the 2015-16 sugar season until April 30 — when the majority of mills in the country had finished processing most of their cane stock — show millers have produced the smallest stock in four years.
They produced 24.6 million tonne, down 11% when compared to 27.6 million tonne of the previous year’s corresponding period.
“With unfavourable weather leading to erosion in production across major suppliers, primarily Brazil, India and Thailand, and the resultant expectations of a global deficit in 2015-16 after five years of sugar surplus, there was a rebound in international sugar prices during January 2016. There has also been a significant rise in international prices in May and June 2016,” said Sabyasachi Majumdar of ICRA, a market analyst.
Despite the shortfall, the government doesn’t think imports are required at this stage.
“Full final estimates may take some more time. India should have a total stock of 30-31 million tonne at the end of the sugar season in October, which should suffice until the next stocks arrive. The government is taking all precautions,” an official said.
The government has taken the first steps to tame prices. On Thursday, the government decided to impose a 20% duty on sugar exports.
The ministry also imposed stockholding limits as an antihoarding measure. The government also rescinded a rule requiring mills to compulsorily export surpluses.
At the retail level, in May, prices of sugar and sugar products rose nearly 15% while food prices quickened to 7.5%, sharper than April’s 6.4% rise.