Production at 7-year low triggers sugar imports (News Analysis)

India's sugar production is set to plunge to its lowest levels in the last seven years, prompting the government to allow duty-free imports of 500,000 tonnes of raw sugar to balance the demand and supply ratio.

The estimates of production in sugar season 2017-18 (October to September) put this below the 20 million tonne mark, the lowest since 2009-10.

The production was pegged at 25.1 million tonnes last year.

The duty-free imports announed on Wednesday will continue till June 12 and follow consistent lobbying by refiners, who claimed a possible spike in retail prices due to widening of demand and supply gap in the wake of lower production. There is a 40 per cent duty on sugar imports. Refiners have been urging the government to reduce the duty to meet the gap between demand and supply.

Stakholders representing private and cooperative sugar mills pointed to various factors such as drought; low recovery of sugar from the crop; and diversion of sugarcane for production of jaggery, juice and fodder, among others, for this year's lower output.

According to their estimates, the output will range between 19.7-20.3 million tonnes this year, which is a little ahead of 2009-10 output of 18.9 million tonnes.

The latest estimates by the Indian Sugar Mills Association (ISMA), which represents the private sugar industry, has put the production at 20.3 million tonnes from the earlier estimates of 23.4 million tonnes.

"Our production estimates saw huge fluctuation because of drought and lower recovery of sugar from sugarcane especially from ratoon (new shoot springing after cutting first crop)," ISMA Director General Avinash Verma said.

The National Federation of Cooperative Sugar Factories (NFCSF) estimates the production at 19.7 million tonnes.

While ISMA and the NFCSF rule out any possibility of further decrease in production, government officials and refiners think otherwise.

"Sugarcane crushing in major states such as Maharashtra and Karnataka has completely stopped. Now, mills in Uttar Pradesh are operational but he major share of sugarcane there is used for non-sugar purposes. Also, the sale of sugarcane to rasvantis (juice centres) this summer has increased substantially. So there are chances the production figures may go down further," a government official said, requesting anonymity.

In addition, many farmers used a substantial chunk of the sugarcane crop as fodder in absence of regular fodder due to the drought.

The official said the import of 500,000 tonnes of raw sugar was required to ensure enough availability till fresh supplies from the domestic market start arriving in October.

On their part, refiners have welcomed the decision to allowing sugar imports.

"We have been talking about shortage that has occurred mainly due to drought. The government had to take a call on reducing import duty. We expect the imports will be allowed even after June 12," said M. Manickam, Executive Chairman of Tamil Nadu-based Sakhti Sugers Limited.

The NFCSF said the the duty-free imports will not have any impact retail prices

"As the amount of imports is not much against the total consumption, we do not think there will be any impact on domestic industry and retail prices. The prices will remain stable," said NFCSF Managing Director Prakash Naiknavre said.

The ISMA, however, said that imports were not necessary as the expected opening stock (availability before new sugar year starts) of four million tonnes will be sufficient.

At present, mills are selling sugar at Rs 35.50 to Rs 37 per kg while the average retail price is between Rs 41 to Rs 43 per kg.

(Saurabh Katkurwar can be contacted at saurabh.k@ians.in)

--IANS

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