Brazil, the world’s biggest sugar producer, may see a sharp fall in output. India, the second-biggest producer, is ready to fill this gap. With its estimated production of 26 million tonnes, India could easily export 3 million tonnes. Jonathan Kingsman, chairman of Switzerland-based Kingsman, the world’s top sugar consultancy and brokerage firm, speaks to Ajay Modi on the prospects of exports from India. Edited excerpts:
You recently concluded the third Kingsman Indian Sugar Summit. What changes did you notice in Indian industry since your first event in 2009?
The industry has become much more professional in its actions. Similar changes are apparent in the industry body, Indian Sugar Mills Association (Isma). The industry is now more accurate in predicting crop and production patterns. It is very focused as to what it wants and is working towards desired goals. The second change is more openness in the government to respond to this professionalism.
What do you estimate India’s sugar output to be in the 2011-12 season?
Having factored various determinants like sowing and the monsoon, we expected India to produce around 26 million tonnes (mt) of sugar.
Considering an output of 26 mt, how much quantity can India comfortably export?
India’s consumption should be around 22 mt. There will be a surplus of 4 mt. I am not sure if the government will allow all of this to be exported but people are expecting India to export around 3 mt next year. If the crop turns out to be better, it could be even higher. It is lucky in a way that the Indian harvest is expected to be good when the Brazilian harvest is set to be bad.
What gap in global supply has been created by the lower forecast of the Brazilian crop?
In February, we expected Brazil to produce 33.9 mt. The latest estimate is 30.6 mt. So, we lost 3 mt. There may be further downside on that number, as yields are low and seem to be getting worse, leading to an early end of the harvest. Probably, we will have to lower the forecast again.
How can this gap affect global prices, even as you estimate the world to have a surplus of about 9 mt?
It is a curious situation because Brazil is traditionally an exporter of raw sugar. So, this leaves the world very tight on raw sugar. The New York raw sugar market may be steady. Supply will be coming from Russia, EU and India, who are all traditionally white sugar exporter. This would pressurise the white premium. Refineries in West Asia are expected to lower their throughput and buy less raw sugar from Brazil. North Africa and West Asia could buy white from EU, while India could cater to East Africa and West Asia. The world is short of stocks and so most of the projected surplus will go into building pipeline and stocks and not all surplus will be available for exports. Considering the deficit of 17 mt in 2008-09, the surplus is not big.
Kingsman recently said India could become a structural importer of sugar...
Due to the statement’s ambiguity, it was unfortunately misinterpreted. We had intended to say that if the Indian government did not allow exports next year, mills will be in poor financial health, cane arrears will build up and affect acreage. Therefore, production next year could fall and India may have to import again but only if no export is allowed.
India has its infamous sugar cycles. What causes such swings in output?
In the current system, the sugarcane price signal does not work. A farmer gets a signal to plant more or less cane from the payments actually made and not the sugarcane price. The mechanism for regulating production is, therefore, cane arrears/timely payment. Cane arrears have caused big changes in production. No other country in the world has cycles caused by cane arrears. Globally, cycles are due to bad weather leading to bad crop. In case a revenue sharing mechanism is brought in between the mills and farmers, it will even out the cycles.
Demand for decontrol is getting stronger. What reforms are necessary for the industry?
From my experience of other countries, all I can say is the most important aspect would be revenue sharing with farmers to determine a sugarcane price, against current norm of the government fixing price based on certain factors. The second one is the levy sugar which is a kind of tax on mills and farmers, who are in a way subsidising the below poverty line category. The government should also stop micromanaging supplies through releases. There are a large number of mills and they should be free to compete against each other.
