Not many would have noticed the news item of Portugal briefly running out of sugar a few weeks ago. But the fact that in nearly three decades a European country had to contend with zero stock of an essential commodity, however short-lived that might have been, was a kind of rude awakening for the European Union (EU). This alongwith harsh winter in Europe has led Brussels to not consider sanctioning new sugar licences immediately.
As any other country groupings or individual nations will be reacting in a situation like the above, EU is unambiguous about its commitment to meet the requirements of the internal market first. We have seen it here how cautious New Delhi always is while sanctioning sugar exports. But whether it is the EU or India, it is better to err on the side of caution than to risk shortages and inflation in the internal market.
We are not to forget too quickly the common man’s ire and the government’s discomfiture with the behaviour of sugar prices between August 2009 and March 2010. As after the disastrously low production in 2008-09 followed by a much less discomforting output than originally feared in the season ended September 2010, mills are now poised for a major production breakthrough, sugar has once become affordable than earlier.
We had jitters on the price front recently when sugar started costing over Rs 32 a kg. Prices since made a retreat to a level where sugar factories are breaking even without consumers complaining. Explaining the reasons for prices piping down quickly, director general of Indian Sugar Mills Association (Isma) Abinash Verma says, “This happened because the government extended the stock holding limit of 200 tonnes per trader and made an liberal non-levy release of 1.7 million tonnes for January 2011. In the past three years, the January release was 1.45 million tonnes.”
According to former Isma President Om Dhanuka, the assurance of India producing a volume this season which is to leave it with good exportable surplus is coming to the aid of the government to make market interventions of the right kind. But the move to make releases for exports in tranches, keep speculation at bay by keeping the lid on trade stocks and a liberal monthly free sale sugar quota now underpins the government’s watchfulness. In fact, the government has enough in its armoury to neutralise any overindulgence in speculation that resumption in futures trading may encourage.
The immediate past chairman of Isma Vivek Saraogi says the country expecting sugar production of around 25.5 million tonnes in 2010-11 with opening stocks of over 5 million tonnes should make the best of the current supply squeeze in the world market to export 3.5 million tonnes. There is much merit in his recommendation that we should try to export the maximum by February to take advantage of the nearly 30-year high sugar prices at ICE futures for raws and NYSE Liffe Exchange for the refined. Saraogi wants exports to be pushed hard ahead of the beginning of “Brazilian sugar production and exports.” The government will, however, have to strike a balance between cashing in on attractive world prices and compulsions to keep sugar affordable for the masses here. After all, it is still early to make a firm projection about the season’s sugar production.
Besides what is allowed for exports to meet the official condition to neutralise tax-free raw sugar imports during 2004-08, the government has allowed exports of 500,000 tonnes under OGL in the first instalment. Verma, who is setting great store by land accretion to cane by nearly 1 million hectares to 5.1 million hectares in the current season making ground for a bumper cane harvest of 336 million tonnes and consequently a bountiful sugar output, is hoping that New Delhi will be allowing further exports by January end. A sea change from the last two seasons when we supplemented domestic supply by imports of 6.48 million tonnes.
ABN Amro Bank says the global supply shortfall this season will be nearly 3 million tonnes as demand is to reach 165.3 million tonnes. This then is going to be the third consecutive year when supply will fall short of demand. Funds and speculators are drawing inspiration from the weather triggered difficulties that Europe, the US and Australia are facing, while shipments from Brazil under dry weather spell and a cautious India may be less than required. All this is happening on the back of second half of 2010 when, according to Thomson Reuters/Jefferies CRB Index of 19 raw materials sugar made the biggest gain at 89 per cent.
| BITTER SWEET | ||
| Year | Sugar Production | Sugar consumption |
| 1990 | 12.58 | 11.54 |
| 1991 | 13.71 | 12.28 |
| 1992 | 15.25 | 12.98 |
| 1993 | 12.45 | 13.8 |
| 1994 | 11.7 | 13.9 |
| 1995 | 16.41 | 13.84 |
| 1996 | 18.23 | 14.82 |
| 1997 | 14.62 | 15.7 |
| 1998 | 14.59 | 16.7 |
| 1999 | 17.44 | 16.98 |
| 2000 | 20.22 | 17.3 |
| 2001 | 20.48 | 17.85 |
| 2002 | 20.48 | 19.76 |
| 2003 | 22.14 | 20.26 |
| 2004 | 15.15 | 19.12 |
| 2005 | 14.17 | 20.39 |
| 2006 | 21.14 | 19.87 |
| 2007 | 30.78 | 22.43 |
| 2008 | 28.63 | 23.5 |
| 2009 | 15.95 | 24.2 |
| 2010 | 20.54 | 23.5 |
| Source: Bloomberg Compiled by BS Research bureau Figures in million tonnes | ||
Sugar’s underlying fundamentals are becoming tighter. China will need to import about 3 million tonnes as anticipated domestic production will fall short of demand of 14.5 million tonnes by at least 2.5 million tonnes. The US is reportedly planning to up imports by 300,000 tonnes. Australia, a victim of wettest spring and now floods, is leaving huge quantities of cane unharvested. But sugar is no exception. So many other agri commodities from cotton to soybean are trading at multi-year highs.
