What a pulsating journey it has been for sugar since the beginning of 2010! The world saw raw sugar prices climbing to 30-year high of 30.4 cents a pound in February when Indian production was estimated at a dangerously low level of about 15 million tonnes and Brazil was contending with a harvest-disrupting weather. Money managed positions then, too, contributed to the market frenzy.
But come May, to use an apt analogy from the London-based Daily Telegraph of a diabetic lapsing from hyper-excitability to acute lethargy, sugar prices fell by half with reports of better production pouring in, particularly from India. (Mercifully, our country ended the sugar season in September with an estimated production of 18.9 million tonnes, giving Food Minister Sharad Pawar the elbow room to push for far-reaching reforms that the sugar sector needs for growth and sustainable good working.)
In a roller coaster ride, raws March delivery contracts on the New York Intercontinental Exchange are now a whisker away from the February peak, while white sugar in London is traded at over $720 a tonne. The price surge, explains an analyst with London-based trading house Czarnikow, is because the initial projection of a world surplus of 2.5 million tonnes in 2010-11 is now “heading into a deficit”. Deficit for two consecutive years have brought world sugar stocks at the lowest level in the last two decades.
Spike in world sugar prices has naturally made Indian producers restive to get the nod to start exporting the commodity under open general licence (OGL). Unfavourable weather-related developments have created grounds for more imports among others by Pakistan, China, and Indonesia during 2010-11, while exports by Thailand and Australia will fall for the same reason. All this, coupled with the dryness in the centre south of Brazil (accounting for over 90 per cent of the country’s cane output) and the consistent loading problems in the country’s six main ports, will explain the rise in sugar prices.
Due to favourable weather in all the cane-growing centres and extraordinarily high prices fetched by the crop last season, we are to harvest a bountiful crop this time. This confidence and the season’s opening sugar stocks of six million tonnes helped New Delhi to take a positive stand on re-export of the commodity imported during 2004-08 under advance authorisation scheme. What is, however, particularly inspiring for sugar mills is that Pawar, who earlier braved all opposition to allow cotton exports in order to help farmers get good rewards, appears to be positively disposed to export of the sweetener under OGL.
Capitalising on high prices in the world market will, no doubt, be one of the key considerations for India to start exports quickly. Last year’s high cane prices – some mills in Uttar Pradesh paid as much as Rs 300 a quintal – fired reward expectation of growers. Moreover, UP is an ever obliging state. But let us not forget that for a number of months during 2009-10, sugar sold at disconcertingly high rates, with retail prices touching Rs 50 a kg. That enabled mills to procure cane at exorbitant costs. Sugar is a cyclical industry. After two years of low production, India is now headed for a strong recovery in cane and, consequently, sugar output.
Based on the September-end reports by sugar commissioners, the government says 2010-11 cane production from an area of 5.06 million hectares will be 346 million tonnes. Haven’t we seen the country producing 26.36 million tonnes of sugar in 2007-08, when the cane crop was marginally higher at 348 million tonnes? “So, we will have enough raw material to make up to 26.5 million tonnes of sugar this season, though at the industry level, we are talking about 25.5 to 26 million tonnes. We have empirical evidences that in a bumper crop year, cane drawal percentage of sugar mills improve,” says O P Dhanuka, a former president of Indian Sugar Mills Association. If the higher production estimate is taken, then with this season’s opening stocks, the country will have an availability of 32.5 million tonnes. The caveat here is that there is no finality either about the cane supply or the percentage recovery of sugar from cane, as we go forward. Weather keeps on changing leaving its impact on the crop, as we found last season to our relief.
How much should India be exporting when supply is this comfortable? There is a great hunger for Indian sugar this season and our millers’ restiveness to sell in the world market is to earn enough from exports to compensate for low price realisation at home and also be able to meet growers’ expectation, so that their interest in the crop is sustained. We made record exports of nearly five million tonnes in 2007-08 and still had end-season stocks of 10.5 million tonnes. The government’s food security perception will finally bear upon exports this time. But any export rush on our part may lead to some correction in world sugar prices. In fact the world trade community is waiting for New Delhi’s decision on exports.