Sugar prices may not stay in sweet spot for consumers next year: ASSOCHAM study

The sweet spot in sugar prices seen this year may not last and the glut in one season resulting in mounting arrears to sugarcane growers and shifting of farmers to other crops would lead to drop in production in the next 6 to 12 months, an ASSOCHAM study has forewarned.

According to the latest industry estimates, sugar output is expected to be 27 million tonnes in 2015-16, compared with 28 MT as estimated earlier in July and almost 5 per cent lower than the actual output of 28.31 MT, an eight-year high in 2014-15, reveals the ASSOCHAM study.

The key reasons attributed to loss in production in Maharashtra and Karnataka are lower recoveries and yield losses due to erratic monsoon in 2015.

While the drop of around 12 lakh MT during 2015-16 may not impact domestic situation unduly, what is worrying is the expected drop in sugarcane production in 2016-17, as it is a long duration crop. "Prolonged El-Nino impact might adversely affect cane production in the coming year. Besides aggressive sugar export strategy with declining domestic production is likely mount pressure on domestic prices from 2016 summer", adds the study.

Some analysts are skeptical about 2015-16 estimate of sugar production and place it close to 25-26 MMT or just sufficient to meet domestic consumption needs. "Hence, government needs to manage the situation taking into account domestic needs and availability to ensure that sugar prices which have remained low in the current year do not follow the trajectory of pulses and onion next year," said Mr. D S Rawat, Secretary General ASSOCHAM.

"As per the October CPI, sugar prices have dropped by annualized over 10 per cent, but the situation may not stay in this sweet spot for consumers", said Mr. Rawat.

There must be a balance between the interest of the growers/producers and the consumers. However, in several crops, we are confronted with a glut scenario in one season, to be followed by shortages in the next. "We need better crop and food management", the chamber said.

The consequences of deficient 2015 monsoon are likely to be far-reaching. Besides slowing down the economy considerably and accentuating inflationary pressure coupled with shortages of essential food items across the country, it could also lead to dependence on import of daily necessities. Already India is heavily short on vegoils and pulses and a recurring monsoon failure might push the country into a tight corner in respect of sugar, reveals the study.

"Given the huge domestic demand for sugar, government needs to closely monitor both prices and stock situation. Already a section of global exporting community is evaluating possibility of India entering international market for import of these commodities from 2017, if urgent steps are not taken to augment supplies", added Mr. Rawat.

Consequently huge arrears are piling up due to lack of timely payment to cane farmers by the sugar mills. Unless sugar mills clear the dues (payable to farmers) on the cane purchase front farmers might shift to other crops, which in turn will affect sugar production in the country, adds the study.

Sugar Production Estimates (in Lakh MT)

State

Forecast for 2015-16

2014-15

Maharashtra 90 97Uttar Pradesh 71 71Karnataka 46 50Tamil Nadu 13.5 12.5Others 49.5 52.6Total 270 283.1Note:According to the latest estimate by ISMA, sugar output in the world's second-largest producer is expected to touch 27 million tonnes in 2015-16, compared with 28 MT predicted by it in July and almost 5% lower than the actual output of 28.31 MT an eight-year high in 2014-15.

Important kharif crops such as, sugarcane, cotton, paddy/rice, coarse grains, pulses and oilseeds are affected by the poor rains on one hand and due to floods in isolated pockets of the country during monsoon 2015 on the other if timely action is not taken sugar prices will steadily move up beginning summer 2016.

Agricultural research needs fresh impetus to pull the country out of the current crisis. As already highlighted above, sugarcane farmers need total extension/handholding support besides attractive incentives by way of timely procurement and payment for their produce to bring larger area under these crops, highlighted study.

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