India’s sugar output to set record for second successive year

September 2nd, 2015

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Category: Sugar

sugar 450x299(Agrimoney) – Czarnikow added another line to the obituary of India’s sugar cycle by forecasting a sixth successive year of production surplus in 2015-16, raising the prospect of further government support for exports.

The London-based commodities house pegged Indian sugar output in 2015-16, which begins next month, at a record 28.6m tonnes, up 300,000 tonnes from this season’s result, which matched the all-time high.

The prospect of a further increase in output next season “is a remarkable outcome, given that India has been in domestic surplus for the preceding five years and domestic prices are 22% lower than they were 12 months ago,” Czarnikow said.

It would also extend the abeyance of India’s sugar production cycle, which has historically seen marked volatility in output, as rising prices have encouraged farmers to ramp up cane sowings, only for stronger sugar production to provoke a sharp decline in prices which has in turn sent the cane harvest tumbling.

India’s sugar output, for instance, doubled in the three years to 2006-07, only to halve over the two following seasons.

Production boosts

Czarnikow cited in its forecast the weakened incentive to growers to switch from cane to rival crops.

In Uttar Pradesh, the second-ranked cane growing state, “returns from cane are still significantly better than they are for wheat and rice, the two major alternatives”, the group said.

Furthermore, output in Uttar Pradesh in particular will be supported by the adoption of improved varieties of cane, which will lift yields potentially to 55.2 tonnes per hectare.

And while production in Maharashtra, the top cane growing state, will be limited by a “disappointing” monsoon, the setback will be limited by the extent of irrigation, with the potential for winter rains to replenish soil moisture levels too.

“Growth in production in Uttar Pradesh and Karnataka should offset the reduction in output in Maharashtra,” said William Wallace, Czarnikow analyst.

‘Export subsidies likely’

The prospect of a further rise in output comes despite weaker sugar prices having pushed them “far below the cost of production”, the group said.

Indeed, cash-strapped sugar mills are estimated to be 140,000bn rupees in arrears on payments to cane growers.

The industry’s financial woes raise the chances of India’s government reintroducing controversial subsidies on sugar exports, to make them competitive on world markets.

“Given the prospect of another season of domestic surplus, pressure is likely to build on the government to provide further support to the sector,” said Stephen Geldart, Czarnikow analysis manager.

“We think it is likely the government attempts to subsidise exports once more in 2015-16.”

Controversial perks

Government moves to reintroduce export subsidies, perhaps coupled with barter deals, have been long mooted, to give Indian sugar a chance of competing on world markets.

New Delhi-based broker Comdex India last week said that Indonesia, a key sugar import market, could buy the sweetener at $290-295 a tonne from Brazil, compared with a price of some $370 a tonne for Indian supplies.

However, a return of export perks would risk irking other sugar exporters, such as Australia and Brazil, which complained to the World Trade Organization over the last round of subsidies.

India is reported to be considering other measures too to boost its sugar export performance, including forcing mills to sell surplus supplies for export.

Sugar house ED&F Man said last month that “history tells us that government policy is slow to be implemented and the reality may be that little happens until farmer agitations intensify, and the workload of an overstretched prime minister, Narendra Modi, allows the policy to be pushed through”.

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