Sugar production could fall

There are wide spread apprehensions that India’s sugar production might fall in 2019-20 as farmers are struggling to plant cane, thanks to a drought like situation in two of the country’s top sugar cane producing states. If it so happens, the drop in production would not only slash exports from the world’s second-biggest sugar producer, it would also support global prices that have fallen nearly 15 per cent so far in 2018.

Interestingly, around mid-2018, it was expected that sugar output in India would reach a record level as timely showers helped boost yields in the world’s top consumer. Around April-May, 2018, Indian Sugar Mills Association (ISMA) expected that production may total 31.5 million metric tonne in the year that began on October 1, against 29.5 million tonne, as estimated in March, 2018 and the previous record of 28.36 million tonne in 2006-07.

That’s not all. Analysts had thought at that time (April-May, 2018) that a bigger harvest in the world’s second-largest producer might further pressure prices that had been trading at the lowest since September 2015. Global sugar prices that have tumbled more than 30 per cent in the past year could fall further, analysts had thought. And now with the projections of a significant drop in output, whole things will change. Industry sources said that many farmers couldn’t plant cane in Maharashtra and Karnataka due to water scarcity and this will reflect in next year’s production. Significantly, Maharashtra is the country’s second-biggest sugar producer, while Karnataka ranks third. As per projections, Maharashtra’s production could fall as much as 16.7 per cent to 7.5 million tonne in the next season. The sugar marketing year runs from October to September.

Maharashtra received 23 percent less rainfall than normal this year during the June to September monsoon season, while the rainfall deficit in Karnataka’s cane growing region was 29 percent during the period. Apart from water scarcity, an infestation of white grubs will curtail production next season.

Meanwhile, the Centre’s support on sugar in recent past has helped the industry to bring down the outstanding arrears of the farmers in some states like Uttar Pradesh. But there is an aberration related to the fixed minimum selling price (MSP) of Rs29/kg and there are many analysts who are of the view that this MSP should be taken up to Rs34-35/kg. The present MSP, according to many, is not sufficient to make the industry profitable. And that, indirectly, is likely to have an impact on the farmers, who will not be able to earn profits on his product and will not be able to receive their payments on time.

There is another school of thought that thinks that any rise in the MSP will affect exports. That line of thinking is based on the fact that India is home of world’s surplus sugar and is in a position of being a price marker, not a price taken at present. In fact, these analysts think that the world will have to buy sugar at high prices from India and that, in turn, can be an opportunity for India.

It is pertinent to mention there that following a record production in the 2017-18 sugar year, Indian mills were struggling to export the surplus and sought help from the government for overseas sale and to support local prices. A decline in sugar output, if it so happens, could lift local prices and prompt the government to halt export incentives, analysts think.

Columnist: 
Ritwik Mukherjee