It is early in the day to make a plausible forecast of sugar production for the season beginning October 2009. This is because we have to watch how the north-west monsoon behaves in the remaining days of July and August when cane sown in fields will need plenty of water for healthy growth.
Besides the progress of the monsoon, the other factor which will have a major bearing on the next cane crop is how much of the land that in the past got diverted to wheat, rice and pulses on reward consideration is actually restored to cane. The area under cane during 2008-09 shrank to 4.4 million hectares from 5.043 million hectares in the previous year.
But the shrinkage was also to a large extent weather driven as the 29 per cent fall in land under cane to 770,000 hectares in Maharashtra, the largest sugar producing state, will confirm. Similarly, the distressingly low sugar production of 14.6 million tonnes in the current season from 26.33 million tonnes in 2007-08 was on account of a big fall in sugar recovery resulting from dry weather in cane maturing period.
“It was nothing short of a double whammy for sugar factories with cane production down to 289.23 million tonnes from 348.19 million tonnes a season ago and also sugar recovery steeply contracting. Moreover, as has always been the case in the past, the 2008-09 short crop season saw a much larger percentage of cane diversion to the inefficient but government control free gur and khandsari units than when harvest will be bountiful,” says industry official Om Dhanuka.
This year’s experience — were we not told in the beginning that sugar output would be around 20 million tonnes? — shows how tricky it is to make a production forecast for this commodity at this stage. In any forecast now, what, however, needs to be factored in first is that because of the poor 2008-09 crop, the ratoon part of cultivation in the next season will be that much less.
Indian Sugar Mills Association director general S L Jain is hopeful now that the statutory minimum price (SMP) of cane is raised to Rs 107.76 a quintal from an unjustifiably low of Rs 81.18 a quintal after many years of government procrastination, much of the land lost to other crops will come back to cane. But this needs to be watched over the next few seasons.The industry is also holding great store by the declaration in the Economic Survey that sugar should finally be freed of controls. When that happens, mills will not have to subsidise sugar sold through ration shops.
Jain led the industry campaign that since the growers have the option to switch land, an inelastic resource specially for farming in India, from one crop to another depending on which one gets better returns, cane because of its comparatively low SMP till this season had to vacate space to wheat and rice. In the four seasons to 2008-09, SMPs of foodgrains were up 60 per cent against only 2 per cent for cane. Mercifully, the government has now started correcting the anomaly.
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Of the 2009-10 sugar production estimates that we have got so far, the most optimistic one comes from an official of International Sugar Organisation who says India could get an incremental output of up to 5.5 million tonnes. At the same time, our state cane commissioners think production will rise but not significantly.
Highly deficient rains in the north so far have led cooperative officials to scale down the next season’s sugar production estimate to 17.5 million tonnes from the earlier 18 million tonnes. Taking all this into account and also the fact that not much will be there in reserve as the new season starts in October, Morgan Stanley says India’s sugar imports will double to 6 million tonnes in 2009-10.No doubt the problems resulting from too low production have their roots in policies and controls that have long outlived their utility. What is particularly hurtful is that India will continue to be such a big importer of sugar when the commodity is commanding the highest prices in the world market since July 2006. In fact, since January 2009 sugar has advanced over 50 per cent.
Dhanuka says would sugar pries could not have behaved otherwise as for the second consecutive year in 2009-10, demand will be well ahead of supply. The deficit, according to ISO, could be a whopping 11 million tonnes.
That India is buying sugar on such a big scale is in itself a big price booster. Funds are also flowing in as speculators are lending support to sugar futures in anticipation of the market becoming still firm.