Cane shortage drives up prices

IN FOCUS / SUGAR

Sugar is facing a not-so-sweet season for the second consecutive year, with area under sugarcane declining and farmers reporting lower yield.

Mills are holding high cane stocks and buying less cane. Cultivators are shifting to other crops as sugarcane is proving to be less remunerative than expected.

Production of sugar has dipped to an all-time low in India from 19 million tonne to an expected 15 million tonne. Sugar prices have responded by going only one way "" upwards.

Maharashtra, one of the major cane growing states, reported that the area under cultivation was lower by almost 50 per cent in 2004-2005 at just 3 lakh hectare, from the projected 5.74 lakh hectare in 2003-2004, according to analysts.

In addition, drought and disease, combined with high cost of production and low cane prices, have pushed farmers away from sugarcane.

To arrest the rise in sugar prices, the government has been releasing a free-sale quota every year.

The free-sale quota figures released is lower this year and has increased the pressure on prices.

This means good news for companies as profits are expected to expected to rise along with higher prices.

The Centre has also allowed mills to import raw sugar duty-free to ease the pressure on prices and combat any supply shortage under the advance licence scheme. Mills can sell processed refined sugar in the local market.

In addition, the molasses that comes out of the process can be sold.

However, the mills are still required to export 1 tonne of the processed sugar for every 1.05 ton of raw sugar imported within two years of import.

While imports will lead to a rise in sugar supply, sugar demand is expected to be robust thanks to increased consumption.

The average per capita consumption of sugar was 18.3 kg/year in the year 2002-03. The existing trend indicates a rise in sugar use to 23-24 kg/year by 2010.

As a result prices are not expected to fall in the coming months as well.

In the new season, the sugar market is likely to be driven by developments in the giant sugar producing nation of Brazil, which is the world's largest sugar producer and exporter.

India is the world's largest sugar consumer.

In a recent report, the committee on revitalisation of the sugar industry has suggested certain measures to ensure that sugar factories in drought or flood affected states get adequate working capital to start crushing operation in 2004-2005.

A package of assistance for rescheduling debts has been suggested as well, under which a number of loan and easy credit schemes are expected to be offered.

Since September, prices of the S-30 variety have been ruling at the Rs 1600 levels, and has continued to move up from Rs 1609.50 to Rs 1634.00.

The M-30 variety has been floating at around the same levels, rising from Rs 1655.00 to Rs 1677.50.

At present, there are 553 installed sugar mills in the country with a production capacity of 180 lakh tonne of sugar. These mills are located in 18 states.

Almost 60 per cent of these mills are in the cooperative sector, 35 per cent in the private sector and the rest in the public sector.