New Delhi / Bloomberg
Barely a year after ordering sugar mills to compulsorily export from a mountain of stockpiles, India is struggling to cope with spiraling prices and a potential shortage.
After the strongest El Nino in two decades shriveled crops, India’s production is set to decline for a second year to the smallest in seven years. That’s alarmed the federal government, with Food Minister Ram Vilas Paswan last week saying the import duty may be lowered and exports scrapped to prevent any further jump in prices.
India’s likely transition from an exporter to importer comes amid a rally in global prices to a 20-month high, driven by prospects of the first world deficit in sugar in five years. Shrinking production and inventories mean the world’s largest sugar consumer may have to buy anywhere between 2 million metric tons to 6 million tons in 2016-17, according to RCMA Commodities Asia Pte.
“We should have imports in the interest of consumers and to prevent a possible increase in prices in case of any unavoidable situation such as a delay in production in the 2017-18 season,” Mukesh Kuvadia, secretary general of the Bombay Sugar Merchants Association, said by phone on Monday. India may import 1.5mn tons to 2mn tons of sugar in 2016-17 to control prices even if there was no shortage, he said.
Production in India will probably drop to 23.5 million tons in the year beginning Oct. 1, according to a Bloomberg survey last month. That would be the lowest since the 18.9 million tons in 2009-10, Indian Sugar Mills Association data show. With domestic demand set to top 26 million tons, the inventory of about 7 million tons will be substantially depleted, opening the door for imports. India should have enough stockpiles to meet the nation’s requirement for at least three months, said Kuvadia, who’s been trading sugar for three decades. The government will consider lowering the import duty on sugar and ban exports if prices climbed further, Paswan said on Twitter.
Prime Minister Narendra Modi’s government has already sprung into action to rein in prices and ensure the market is well supplied. The Food Ministry last week withdrew a production subsidy that was paid directly to the farmers who supplied cane to mills that export sugar and produce ethanol. It also imposed limits on the amount of sugar traders can stockpile to prevent hoarding.
India, the world’s largest producer after Brazil, is seen shipping 2.9 million tons in 2015-16, making it the fourth-biggest exporter in 2015-16, according to data from the US Department of Agriculture. Raw sugar futures, which touched a 20-month high of 17.29 cents a pound on Friday on ICE Futures U.S. in New York, were at 16.63 cents on Tuesday, while refined sugar futures in Mumbai traded 0.5 percent higher at 3,529 rupees ($52) per 100 kilograms. Prices have climbed 36 percent since Oct. 1, when the cane crushing season began.
“If domestic prices rise further and if the government cuts the duty, then imports will happen,” Yatin Wadhwana, managing director of Sucden India Pvt., said by phone on Monday. “There is no parity in imports at present. As of now there is no shortage as such in the country.”