De-growth in sugar consumption may not affect prices: Report

The expected de-growth of 3 to 3.5 per cent in sugar consumption is unlikely to affect price and profitability in the current sugar year, a report said.
Domestic sugar consumption for SY2017 is likely to report de-growth of 3-3.5 per cent to around 24 million MT as compared to last year.
This is likely to be driven by a lower off-take of sugar from the public distribution system (PDS), short-term consumption loss post-note ban as well as impacted demand from bulk consumers. These consumers include soft drink makers, bakeries, confectioners, hotels and restaurants, which account for around 60-70 per cent of milled sugar demand, said the report by rating agency ICRA.

"The demand impact is unlikely to have an impact on the prices and profitability trends in the current sugar year. The impact of the decline in the domestic sugar consumption during SY2017 is likely to be more than offset by a higher- than-expected decline in sugar production.
"However, an ongoing slowdown in demand is likely to have an adverse impact on prices and business volumes of sugar companies in the medium to long-term," said ICRA Ratings Senior Vice-President & Group Head Sabyasachi Majumdar.
The sugar demand in SY2017 is likely to be impacted by a multiplicity of factors like temporary loss of off-take in November-December following demonetisation. The note ban also led to a reduced off-take by wholesalers/traders.

Secondly, in March 2017, the Centre withdrew the Rs 4,500-crore subsidy for the state governments who distributed subsidised sugar through the PDS. The order will come into affect from FY2018.

This withdrawal is likely to impact the usual off-take by the states and result in lower availability of subsidised sugar. This, coupled with a significant increase in the prices in the open market, would reduce the consumption.
In addition, sugar off-take by FMCG companies is likely to be impacted by factors such as agitation against certain soft drink brands.
The protests have been on account of the alleged significant groundwater consumption by these companies in many parts of Tamil Nadu. This is going to impact the demand of soft drinks manufactured by some of these firms, the report said.

ICRA is expecting a production of only around 20.3 million MT in SY2017. Domestic production is expected to be lower than consumption by around 3.0-3.5 million MT.
The rating outfit projected the closing stocks at around 4.0-4.5 million MT in SY2017, which, it said, would be sufficient to meet the requirement of around two months of domestic consumption.