After stagnating for three years, sugar consumption is likely to rise a marginal 2.2 per cent to hit a record 23.5 million tonnes in the coming year (the sugar year is October-September) on escalating demand, according to a report from Aditya Birla Money.
Around 65 per cent of sugar demand comes from industrial and bulk consumers. Individual consumers contribute the remaining 35 per cent. Industrial sector demand has been strong in recent years due to rising calls for end-products like sweets, cakes and pastries, as a result of changing food habits.
Rural consumers, however, are very price-elastic, interchanging with jaggery. Hence, sugar demand from the kitchen segment keeps changing.
“The increase in demand is natural. Since, disposable income of average middle class people encourages them for a change in food habits and they demand more of readymade sweet dishes, consumption in the kitchen segment will certainly rise. It has nothing to do with the low prices ruling currently,” said Sunny Agrawal, an analyst with Aditya Birla Money.
The sweetener consumption is expected to continue rising to 23.9 mt in 2013. The research-cum-broking firm forecast sugar production at 26.5 mt in 2012, a rise of one mt from 2011.
At least 2.5 per cent annually is natural growth which the sweetener is likely to witness in coming years, said Sageraj Bariya, an analyst with Angel Broking, who forecasts total consumption at 24 mt in 2012.
Closing stocks are set to be only 3.3 mt in 2011, the lowest in the past 13 years. On higher output, however, the closing stocks is expected to be a little better at 4.3 mt in 2012, the report said.
The price of sugar is imbalanced in India, with a dramatic difference in input cost. Cane prices in the southern states are ruling at the Fair and Remunerative Price (FRP) set by the Union government. In Uttar Pradesh, the second biggest producer, there is a higher State Advised Price (SAP) announced by the government. Cane farmers in Maharashtra, the largest producer, get a premium on the FRP.
The central government had fixed Rs 139.12 per quintal as FRP, while the SAP of the UP government was announced at Rs 210 per quintal for cane for 2010-11. As a consequence, south Indian mills have started entering into the north Indian markets that are traditionally occupied by local mills.
Meanwhile, after hitting Rs 44 a kg early last year, sugar prices are Rs 29-33 a kg for the past several months which, industry officials say, is around breakeven. For survival, sugar mills need to make some profits, an official said.
