The Sugar Story
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1) Sugar stocks in India are only enough for 3 months of domestic consumption, so imports will be needed. However, global sugar prices are very high so imports may not significantly lower domestic prices. 2) To control prices during the upcoming festival season, the government will release 18.5 lakh tonnes of non-levy sugar in October. However, sugar prices are likely to reach Rs. 40/kg once new imported shipments arrive next season. 3) India's sugar demand is increasing but domestic production is struggling due to water shortages and climate change, making India increasingly reliant on imports to meet demand.
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The Sugar Story
- 1. By Shashikant S Kulkarni, aquarius career academy, saptapur, dharwad,karnataka state
- 2. The country’s sugar stocks from this season, ending Wednesday, are just enough for domestic consumption of a little over three months Imports may not ensure a fall in sugar prices because of the prevailing high global rates Import by India may not still pull down prices as global rates are ruling high.(Rs 30.5 a kg). Retail prices have to be fixed at a minimum of Rs 35 a kg factoring in margins of both companies and distributors
- 3. Sugar prices might touch Rs 40 a kg when fresh imported consignments would land here in the next season In order to control sugar prices during the ongoing festival season, the government decided to release around 18.5 lakh tonne (lt) of non-levy sugar for October, almost 16,000 tonne more than last month. Of this, around 2.63 lakh tonne will come from imports of white sugar and raw sugar that comes into the market after being converted into refined sugar.
- 4. In total around 20.85 lakh tonne of sugar (levy and non-levy) will be available during October Sugar prices in India have surged by more than 55% in 2009, because of an estimated 43% fall in sugar output to 15 million tonne in 2008-09. India has so far contracted to import more than 4 million tonne of raw sugar since February for processing and sale into the domestic market
- 5. Each time the government tinkers with its policy on importing sugar, shares of all listed sugar companies go up. Investors tend to believe that increase in raw sugar imports in a year of shortage would benefit all sugar companies. But is that true?
- 6. We can divide Indian sugar mills into four groups. One, mills that have uninterrupted fuel supply. These are mills with port-based refineries that are specifically designed to produce white sugar from raw sugar. So their business model depends on importing raw sugar all year long
- 7. Two, mills that enjoy an extended cane harvesting season. Mills in Tamil Nadu continue getting cane supply months after the harvest is over in UP and Maharashtra. Since cane supply also means extended supply of its straw residue or bagasse, mills use it for firing their boilers and refining raw sugar alongside. But when the local harvest runs out, they have to stop refining raw sugar too.
- 8. Three, mills that have partly switched to coal. In UP, where cane supply has been extremely limited in the last two years, a few companies have now shifted couple of their boilers from bagasse to coal. This allows them to refine raw sugar even in the off season between March and September, when local cane is not available.
- 9. Four, mills that have neither coal nor bagasse. These can refine raw sugar only when they have local cane during the normal season. In other words, these mills will start refining raw sugar only from October when they also start getting supply of cane in their factories. All the raw sugar they are currently importing needs to be stored till October
- 10. Then there is the question of being able to refine at a profit. Profitability depends on three factors: price of imported sugar, cost of transportation to factory and processing, and local sugar prices. Companies located closer to port gain because of lower freight costs in an extremely price sensitive market.
- 11. You can buy smartly overseas, and even be at port. But if local Indian prices are lower, then refining raw sugar can never be profitable. This is exactly what has been happening for the last several months, when the government swung a stick to keep domestic prices deliberately low.
- 12. Luckily for mills, with festivals round the corner and an official drought, local Indian prices are steadily rising and it is now worthwhile for companies in general to import and refine raw sugar
- 13. Gur is selling for more than Rs 30 per kilo across the country. That makes it as expensive as refined sugar right now Gur is boiled, filtered and solidified cane juice that contains molasses, which gives it the distinctive golden brown colour. Maharashtra is India’s largest producer and consumer of gur, with even a dedicated agricultural export zone.
- 14. Gur was always rural India’s favourite sweetener…. Not any more Gur has moved out of kitchens and into factories.. From being sold as a food item, it is now being sold as an industrial raw material. Virtually the entire quantity of gur is being used to make alcohol. Manufacturers in western UP’s Muzaffarnagar district put the figure at 92%.
- 15. The shift has been triggered by the shortage of sugarcane and its by-product molasses. Molasses are fermented to make alcohol Since sugar mills separate molasses from the juice while making sugar, alcohol companies – large and small – have assured supply. When molasses is in short supply, as happened in the current season, the larger alcohol companies import it. But country liquor-makers simply brew gur to get the same result. The way Russians ferment potatoes for vodka.
- 16. Demand from country liquor has emptied gur cold stores, pushed up factory gate prices 200% (more than sugar actually) in Tamil Nadu and Maharashtra, and allowed gur manufacturers to pocket an average profit of Rs 400/quintal.
- 17. There is a clear gap between the quantity we wish to buy and the quantity we can produce locally. This gap will widen further in the coming years. Look at demand. In 2009-10, it may touch a record 23 kg per person, say industry estimates India’s consumption of 23 mn tonnes in 2009 will soon appear piffling. If each Indian eats one kilo extra in a year, we will add a million tones to that figure.
- 18. Now look at supply. To meet demand over next couple of years, India needs to grow cane on at least 5.5 mn hectares, with a yield of 65 t per hectare. But cane grows on maximum 4.4 mn ha, with an average yield of 55 t/ha. So we are already short and need to boost acreage by 25% and yields 20%. Can we achieve this? Chances are slim. Sugarcane needs plenty of water and labour. Both are increasingly scarce and expensive
- 19. UP, Punjab & Haryana farmers began abandoning cane even before the drought as net returns have declined despite substantial hike in procurement prices. University of Agricultural Sciences, Dharwad, is advising a switch to sugar beet in Karnataka In Maharashtra, irrigation and political support allowed even semi-arid districts that need tankers for drinking water to grow cane.
- 20. But it is unsustainable. Across India, water shortage, climate change and increased soil salinity are taking their toll. Growing cane is a luxury that India may not be able to afford much longer From drip irrigation, new varieties and monetary incentives for good growing practices to organic farming and GM cane, every option is being explored.
- 21. Prosperity and altered farming conditions will leave India increasingly dependent on imports