A benign year for Indian sugar
With the world market trading at a premium to production costs, India has been able to export its sugar surplus at remunerative values.
The 2011/12 season should be a good year for the Indian sugar industry. With the world market trading at a premium to production costs, India has been able to export its sugar surplus at remunerative values.
This is an improvement in fortunes for a country whose sugar industry has traditionally been affected by a swing cycle compounded by a high level of government interference. Deficit years have led to large-scale imports, which have seen increases in cane prices to incentivise plantings. However, these cane prices subsequently become unaffordable when the country reverts to surplus and domestic/export returns become depressed, which has led to late payments to farmers and acreage diverted to competing crops.
- This season India is likely to produce just short of 26m tonnes of sugar which represents almost a doubling of output in three years and an increase of more than 1.5m tonnes on last year.
- This year’s production increase has been largely driven by the states of Uttar Pradesh and Tamil Nadu.
- The key state of Uttar Pradesh is expected to produce almost 7m tonnes of sugar this year, 1m tonnes more than last year. This is due to two successive above-inflation cane price rises, which have seen farmers increase acreage and improve husbandry.
- Following the excellent harvest this season, Indian exports will exceed 2.5 million tonnes for the second year in succession, which is a new record.
- The Indian government has been far more pro-active in authorising export tonnages than last year, with 3m tonnes of exports authorised so far.
- Indian exports have been helped by strong world market values over the past 18 months. Previous Indian surpluses coincided with depressed world market values.
- This season should bring record earnings to the industry of around Rs.800bn. By way of contrast, Indian industry earnings fell during the 2007/08 season, the most recent comparable stage in the swing cycle.
Domestic prices and mill returns
- Traditionally, Indian production surpluses have coincided with global surpluses, which limited India’s ability to export. This meant that in surplus years mills struggled to make timely cane payments to farmers, who then switched into other crops, setting the scene for the next down-leg in the swing cycle.
- For much of 2012 Indian raws have been offered at around $600 and low quality whites offered at $620-640, which has preserved mill cashflow and enabled timely payments to farmers.
- In effect, the premium world market has been used as a safety valve for the Indian market, and this has been seen in domestic market values which are now only 13% lower than the November high.
- As a result, cane arrears this season have been largely avoided, despite high cane prices.
- Comparatively, returns from crops such as wheat and rice have been poor this year. Consequently, it appears that many farmers will choose to remain in cane in the coming 12/13 season.
Toby Cohen, Czarnikow director, said: “This has been a much more benign year for the Indian industry and with cane payment arrears largely avoided, it seems that farmers have every incentive to stick with sugarcane.”
Peter de Klerk, Czarnikow analyst, said: “The swing cycle is reducing in scale and the widely-expected downturn in Indian production in 12/13 may not occur.”
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