The recent hike in sugar import duty to 50 per cent comes as a breather for sugar mills struggling with cane arrears and moderating sugar prices. Sugar prices (ex-mill) started their uptrend from July’15 at ₹2,157/quintal and touched a high of ₹3,730 in February 2017. Then prices started sliding owing to expectation of higher domestic production and fear of cheaper imports following a crash in global sugar prices.

Domestic factors India is expected to produce 25.1 million tonnes (mt) of sugar in 2017-18 (SS), which is 25 per cent higher than 2016-17, according to ISMA.

The firmer sugar prices and recent hikes in fair and remunerative price (FRP) of cane by 11 per cent to ₹255/quintal have induced farmers to increase acreage. In addition, timely and higher cane payments, particularly in UP, and adequate water reservoir levels in Maharashtra helped increase cane acreage in these States.

UP and Maharashtra together are likely to contribute two-thirds of the total sugar output. According to government data, sugarcane planting as on July 7 is up 6 per cent to 4.8 million hectares. That’s likely to increase cane output to 330 mt in 2017-18 compared to 306 mt in 2016-17, assumingnormal monsoon and favourable weather conditions.

Sugar consumption is estimated at 26 mt. The approaching festival season and clarity over government’s decision to put sugar under 5 per cent GST is likely to increase its demand in the near future.

The sugar stock is likely to reduce to 4-4.3 mt by the end of 2016/17 SS — just enough to meet the requirements for two months. However, to supplement the tight domestic supply situation towards the end of 2017 and keep price rise under check, the government may allow additional imports. The expectations of reduction in import duty and high sugar output domestically will encourage mills to offload their stocks. Higher domestic sugar prices in comparison to global prices will encourage the mills to sell more locally.

Global scenario The global sugar futures has lost closer to 50 per cent of its value in the last eight months till June end when it reached the lowest level of 12.5 cents for July delivery.

The world production of sugar is forecast to increase to a record 180 mt compared to a flat consumption requirement of 172 mt, leading to sugar surplus in 2017-18 after two years of deficit.

The favourable weather along with the fading away of El Nino effect brought hopes of surplus sugar production from the key producing countries, particularly Brazil, India, the European Union, China and Thailand.

Moreover, the entry of EU as a surprise exporter post the removal of sugar quota system will add to the global sugar supply surplus and keep prices depressed.

Outlook Overall, sugar prices look likely to trade in range after witnessing some correction and later may firm up with limited gains. The prospect of sugar production coming back to 25 mt in 2017-18 over normal monsoon and increased cultivation, coupled with negative cues from the global market, is likely to keep prices under check.

However, the return of bulk purchasers at lower levels and demand on account of approaching festival season will lend some support.

The writer is vice-president and head of agriculture, food, and retail at Biznomics Consulting

Related Topics
comment COMMENT NOW