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| 'India may continue to have sugar deficit' | | Q&A: Sergey Gudoshnikov, Senior Economist, International Sugar Organization |
| Jitendra Gupta / Mumbai Jul 02, 2009, 02:35 IST |
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 The sugar scene has become worrisome after some years of ample crop. The move from glut to scarcity has made the government jittery. The scene is such that even this year, despite a decision to liberalise imports, sugar prices may not come down as the government had expected. Jitendra Gupta discussed the sugar scene with Sergey Gudoshnikov, Senior Economist, International Sugar Organization. He said in an e-mail interview that it would not be surprising if sugar prices moved up further. Edited excerpts:
What are your estimates for India’s sugar demand and supply?
The ISO estimates that this season India’s sugar production will be about 15 million tonnes, while consumption is put at 21.6 million tonnes. It has been noted that the ISO makes estimates for world sugar balance four times a year. Last time we had revised our balance in May and further corrections were possible.
Nevertheless, it looks that in case of India, it will be rather fine tuning than structural changes in the level of earlier projected production and consumption.
We have recently seen the Indian government taking steps to restrict the price rise in sugar. In this context, do you think the government will be able to do so in a situation where the production is lower in the country?
India is in deficit and seemingly has to import sugar but import parity does not allow imports at the current level of world prices. So, on one hand, if there is no fresh supply of sugar to the market (i.e. new imports) then domestic prices may go up.
On the other hand, before domestic prices have improved no new import purchases are foreseen. Obviously, the other part of the equation is world prices. They have recently eased (quite possible on the back of the absence of new purchases by India). In other words, we have a moving target here. Generally speaking, a further improvement of domestic prices in India will not be surprising.
What is your outlook for global sugar prices and why?
World prices have increased quite significantly in the last months or two, partly on the back of large-scale Indian buyings or their expectations. At the same time, better world market prices can also be attributed to a renewed interest of speculators in sugar futures (as well as other commodities).
What is your global demand supply estimate considering that oil prices are low and thus there could be less diversion towards ethanol?
Preliminary figures show that despite weaker oil prices and Brazil’s sugar production growth, next season can still be a deficit season.
Assuming an annual growth at 2 per cent we receive a consumption projection of 168 million tonnes.
This compares to this season’s expected level of world production of 156.6 million tonnes. Therefore, if world production remains unchanged, the world sugar economy will face a considerable deficit of about 11 million tonnes.
How plausible is this neutral assumption for world production next season?
These are early days to forecast production from beet, which has been just sown or from the cane campaign in the southern hemisphere, which has not yet started.
However, which of the key producers can be realistically expected to expand production in the next season?
The first obvious candidate is India. A production recovery of about 30 to 35 per cent would bring an additional 5.3-5.5 million tonnes to the global supply. Some important contribution can also come from other major Asian producers including China, Pakistan, the Philippines and Thailand.
Higher output is also anticipated for the US with a recovery of comparatively high profitability of beet growing.
On the debit side, for the first time since 1999-2000, sugar production might decrease in Brazil. Assuming a further slowdown of the industry expansion in Brazil in 2010 due a likely negative effect of the current credit crunch, next season (October-September) all additional cane availability will be needed to cover growing domestic demand for ethanol leaving less cane for sugar. As a result, sugar output is expected to remain flat or even decline. The overall result is still a global deficit.
Since sugar demand is rising steadily and there is limited scope for increase in acreage for sugarcane sowing, how can India meet its requirement?
Further increases of efficiency in both growing and processing sectors is still possible – at the end of the days, India is not so far the most efficient sugar producer in the world.
India has seen a revolution in cotton crop due to Bt cotton. Is it possible to replicate the success in sugarcane?
Yes, GMO may be a step further but consumers have to adopt it.
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