India's sugar output to fall by 3.7 MT due to droughts: Report

Sugar output in India, the world's second largest producer, is likely to fall by 3.7 million tonnes in 2016-17 due to droughts in the previous two years, a report said.

It added that the country will become a net sugar importer in the current fiscal.

"The world's second largest producer of sugar, will witness a fall in production by 3.7 million tonnes due to consecutive droughts in 2014-15 and 2015-16 and will become a net sugar importer in 2016-17," a Rabo Bank report said.

Sugar production in Asia is expected to be significantly lower in the 2016-17 sugar season as the 2015 El Nino-induced drought pulled output down to a five-year low, it added.
 

In 2015-16, Asia will witness its first deficit year in over five years as Chinese sugar production has declined by over 2.3 MT (raw value) over the previous year and Indian sugar production will decline by over 4 million tonnes, pushing Asia into an overall deficit of 2 million tonnes, it said.

"World raw sugar prices have risen by 30 per cent since mid-April, from 14.3 US cents per pound (c/lb) to 18.8 US c/lb (basis July futures), as the market started factoring in potentially lower global sugar output in 2016-17," the report said.

Sugar prices across Asia have also started to reflect tighter fundamentals.

Higher price trend is likely to persist over the next few quarters and will have substantial impact on Asian food and beverage (F&B) corporate margins, it added.

The report said industrial demand for sugar remains strong and is expected to rise as increasing prosperity in Asia continues to drive growth in packaged F&B consumption.

While most countries have created policy frameworks like import tariffs and minimum cane purchase prices to influence and stabilise domestic supply and sugar prices, industrial users remain open to the risk of higher prices or supply disruptions.

Industrial buyers, therefore, will need to consider financial and operational strategies to mitigate these price risks, it opined.

Despite being the largest sugar consumer, India remains one of the fastest-growing markets for non-household sugar.

Confectionery and soft drinks are the two key sectors driving non-household sugar consumption in the country.

However, as the largest non-household consuming sectors, processed fruit-based products, confectionery and the traditional sweet-making industry will continue to drive absolute volume growth in this market, said the report.