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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


27 April 2012

USDA GAIN: India Sugar Annual 2012USDA GAIN: India Sugar Annual 2012

Indian sugar production is poised to increase to 29.8 million metric tons (raw value basis) in marketing year (MY) 2012/13 (October-September) due to an expected increase in sugarcane production. Anticipating surplus sugar production and strong export demand for 2012/13, India will continue to be a net exporter of sugar for second consecutive year, with exports likely to reach as much as 2.5 million tons. Continued strong demand from bulk consumers will push sugar consumption to 26.5 million tons.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Commodities:

Sugar, Centrifugal

Production:

Sugar production is poised for a third consecutive year of strong growth (marketing year [1] 2012/13 [2] ) after moving through a downward cycle in 2008/09and 2009/10. India’s total centrifugal sugar production in 2012/13 is forecast at 29.75 million metric tons, [3] which includes 435,000 tons of Khandsari sugar, (a low recovery centrifugal sugar prepared by openpan evaporation method), due to an expected increase in sugarcane planting and yields. 2012/13 gur production (a crude non-centrifugal lump sugar) is forecast higher at 4.4 million tons due to the expectation of firm prices.

India: Sugarcane and Sugar Production

Modest-to-strong cane price realization despite weak sugar prices in domestic markets, coupled with strong export prospects for Indian sugar in 2011/12, will likely help mills increase cash flows and avoid mounting cane arrears. [4] This should incentivize farmers to plant higher cane acreage in 2012/13. Assuming a normal monsoon and favorable weather conditions, sugarcane planting are forecast at 5.25 million hectares, (up 3 percent over last year), and sugarcane production is forecast higher at 365 million tons. However, deficit northeast monsoon rains in the 2012 rabi (winter sown) season have raised concerns over accumulating moisture stress in southern and western India, which may temper cane production prospects for 2012/13.

With the rising cost of labor and irrigation for sugarcane cultivation, the Maharashtra state government is assisting sugarcane farmers in procuring sugarcane harvesters. (See GAIN Report IN2041 for more information on this program). Industry observers believe that mechanical cane harvesting will reduce the cost of sugarcane production, ensure timely and reliable supplies of fresh cane to sugar mills, ensure timely harvesting for maximum yield and sugar recovery, overcome labor problems, and improve soil structure. In general, rising sugarcane cultivation costs, coupled with better remuneration from competing crops such as paddy, wheat and corn, should keep cane prices firm during the forthcoming season.

According to the second advance estimate from the Indian Ministry of Agriculture, 2011/12 sugarcane production is revised down marginally to 347.9 million tons from the previous estimate of 350 million tons. Concurrently, 2011/12 centrifugal sugar production is likely to grow to 28.8 million tons, up 553,000 tons over its last estimate, due to improved cane availability coupled with a lower-than-anticipated diversion of cane for gur production. Despite a late start in Maharashtra for crushing and an earlier than usual start (3 weeks early) in Uttar Pradesh, sugar recovery is expected to be better than 2010/11, lending support to higher sugar production in 2011/12. The recent weakening of gur prices vis-à-vis sugar (Figure-2), and relatively modest cane prices paid by sugar mills limited the diversion of sugarcane for gur production during the peak crushing season. As of March 15, 2012, 2011/12 mill sugar production is estimated at 21.2 million tons (crystal weight basis) compared to 18.6 million tons for the corresponding period of 2010/11.

Consumption:

Indian sugar consumption is set to rise in 2012/13 to 26.5 million tons on improved domestic supplies and strong demand from bulk consumers. Prospects of growth in the Indian economy[1], and a growing population (about 1.8 percent per annum) would support growth in sugar consumption. Bulk consumers such as soft drink manufacturers, bakeries, confectionary, hotel and restaurant consumers account for 60 percent of milled sugar demand. Most bulk consumers only use cane sugar as India does not produce high fructose corn syrup (HFCS) in significant quantities. In the recent 2012/13 Union Budget announcement, the Government of India (GOI) reduced the import duty on corn syrup from 30 percent to 20 percent for fiscal year 2012/13. Lowering the import duty will encourage imports of HFCS for commercial use. Local sweet shops consume most of India’s Khandsari sugar. Gur is mostly consumed in rural areas for household consumption and feed use.

Market Prices

After reaching a peak in January 2010, domestic sugar prices softened on the expectation of increased domestic production in 2010/11 and forecasted higher production in 2011/12. Following the GOI’s decision to allow sugar exports in 2011/12, domestic sugar prices rose strongly in November 2011, but were moderated as fresh sugar supplies pulled down prices. Current sugar prices in India’s domestic wholesale market range from $540 to $600 per ton. Sugar prices in the upcoming 2012/13 season are expected to remain range-bound on prospects of improved domestic supplies, although international price movements can influence domestic prices. Gur prices have been under pressure (Table 6) since the beginning of 2011/12 and its price in 2012/13 will be guided by sugar price movements.

India: Sugar and Gur Prices in Delhi Market

Trade:

Anticipating surplus sugar production and strong export demand for 2012/13, India will be a net exporter of sugar for the second consecutive year, with exports likely to reach as much as 2.5 million tons. Given surplus sugar supplies for 2011/12, the GOI has allowed 3 million tons [1] of commercial exports under Open General License. Of the total allocated quantity for exports, industry estimates 1.3 million tons of sugar will be exported through March 31, 2012.

With the recent softening of international sugar prices and India’s rising domestic cost of production, Indian sugar exporters will face lower export price realization, especially in mills in northern India which face higher transport costs. However, mills in western and southern India will continue to benefit from their proximity to ports and relatively lower production costs. The current pace of exports suggests that Indian sugar exports will reach at least 2.6 million tons in 2011/12. The export estimate also includes 8,424 metric tons of sugar exports to United States under tariff rate quota for fiscal year 2011/12 and re-exports of 37,857 tons of imported raw sugar stocks lying in the Chennai and Kandla ports. [2] Sugar imports in the current and forecast year are expected to be negligible.

Trade Policy

In order to augment domestic supplies due to concerns over rising food price inflation, the GOI took measures to relax import restrictions. The GOI extended duty-free imports of raw and white sugar through a series of notifications (GAIN IN1199) until March 2012. In the budget announcement for fiscal year 2012/13, the GOI has withdrawn the import duty on sugar (raw and white). Without further notification, the import duty on sugar will remain zero. While ensuring an adequate supply of sugar to end consumers, the GOI has also lifted stockholding limits [3] on sugar for recognized traders and wholesale dealers since December 2011.

Stocks:

Total 2012/13 ending stocks are forecast at 7.3 million tons, which is 750,000 tons over 2011/12 ending stocks. This is on par with normal stock levels, which is defined as India’s three-month consumption requirement.

Policy:

Sugarcane Production and Pricing Policy

The Government of India (GOI) supports research, development, training of farmers and transfer of new varieties and improved production technologies (seed, implements, pest management) to growers in its endeavor to raise cane yields and sugar recovery rates. The Indian Council of Agricultural Research (ICAR) conducts sugarcane research and development at the national level. State agricultural universities, regional research institutions, and state agricultural extension agencies support these efforts at the regional and state levels. The central and state governments also support sugarcane growers by ensuring finances and input supplies at affordable prices. To increase the area of cultivation and production in India, a centrally sponsored scheme called the Sustainable Development Fund of Sugarcane Based Cropping System Area under the Macro Management Mode of Agriculture is being implemented in various sugarcane growing states.

The GOI establishes a minimum support price (MSP) for sugarcane on the basis of recommendations by the Commission for Agricultural Costs and Prices (CACP) and after consulting state governments and associations of the sugar industry and cane growers. In 2009, the GOI announced a new fair and remunerative price system (FRP) that links cane prices with sugar price realization by sugar mills. Several state governments further augment the MSP/FRP, typically by 30-40 percent, due to political compulsions rather than market pricing.

Sugar mills are required to pay the “state advised price (SAP)” to sugarcane farmers irrespective of the market price of sugar. Softening sugar prices, coupled with apprehensions of a large cane crop, discouraged the sugar mills to pay higher cane prices vis-à-vis those in 2010/11. However, cane prices received by farmers were higher than the MSP/FRP in most of the growing states. Although the local industry has been advocating rationalization of cane pricing policy by linking it with domestic/world sugar prices, industry sources do not expect any downward revision of the FRP in the coming years given the political clout of the farmers lobby.

Sugar Production and Marketing Policy

The GOI levies a fee of Rs. 240 ($5.60) per ton of sugar produced by mills for the Sugarcane Development Fund (SDF), which is used to support research, extension, and technological improvement in the sugar sector. The SDF is also often used to support sugar buffer-stocks operations, provide a transport subsidy for sugar exports, and provide an interest subsidy on loans for the installation of power generation and ethanol production plants. In March 2008, the GOI enacted the Sugar Development Fund (Amendment) Bill, 2008, that enables the government to include the use of the fund for debt restructuring and granting soft loans to sugar mills.

The GOI follows a policy of partial market control and dual pricing for sugar. Local sugar mills are required to supply 10 percent of their production to the government as ‘levy sugar’ at belowmarket prices, which the GOI distributes through the Public Distribution System (PDS) to the below-poverty line population at subsidized rates. Mills are allowed to sell the balance of their production as ‘free sugar’ at market prices. However, the sale of free-sale sugar and levy sugar is administered by the GOI through periodic quotas, designed to maintain price stability in the market. Since April 2012, the GOI has reinstated the quarterly system (Table 8) of allocating sugar for open market and fair price shops, and has done away with the previous regulated mechanism for the monthly release of sugar. The GOI monitors the sales of the quota by the mills and takes penal action against the defaulter mills who are not selling their quota allocation.

Ethanol Program

India’s ethanol program is based on producing ethanol from sugar molasses, a by-product of the sugar industry and not directly from sugarcane or corn as in most countries. For more on India’s ethanol program, please refer to the 2011 India Bio-fuel Annual (GAIN IN1159).

April 2012

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