The Hindu Business Line : Confusion, lack of clarity over sugar estimate

The country's new sugar season (2006-07) is about to begin with a lot of confusion and possibly disinformation relating to cane output and projected sugar production, which would have a bearing on sugar prices. Lack of clarity and internal discrepancies in supply-demand numbers are likely to send wrong signals and skewer the market.

It all begins with the sugarcane output estimate (first advance estimate) released by Ministry of Agriculture recently, according to which the country would harvest 283 million tonnes cane for the 2006-07 season, a mere 5 million tonnesmore than the previous year's 278 million tonnes. In other words, sugar production would be about 20 million tonnes in 2006-07 (19.5 million tonnes).

Both Government officials and mills are confident that sugar output in 2006-07 would be a record 22-23 million tonnes. However, if one went by the Agriculture Ministry's estimate, the country would be in a position to produce 20-20.5 million tonnes sugar at best, and no more.

Cane output

For sugar production of 23 million tonnes, cane output will have to be considerably more than the estimated 283 million tonnes, in the region of, say, 310-320 million tonnes. From where the additional quantity of cane will come is the big mystery the government must unravel.

If one went by the first estimate for cane, the country's sugar production for 2006-07 will result in severe tightness in supplies and considerably stronger prices. The Government may be forced to continue the export ban too into the next season, despite assurance by the Minister for Food and Agriculture that lifting of export ban will be considered in October 2006.

According to some private sector representatives, the country's cane output would be around 300 million tonnes. Even if this were taken as closer to the truth, sugar production would be about 22 million tonnes the next season. Allowing for domestic consumption (19-20 million tonnes) and fulfilment of export obligation (nearly 1.5 million tonnes), the ending stock position would be precarious with potential for price spikes.

There is also lurking suspicion that the private sector could be deliberating overstating sugar production estimate (some claiming up to 24-25 million tonnes) so that export restrictions are removed soon. The international sugar market has sharply corrected down, making exports unremunerative. The only way to profitably fulfil export obligation is to depress domestic prices by overstating production, argue observers.

Poor statistics

However, the fundamentals should soon catch up. By early next year, one would have a clearer view of cane output and a fair idea of sugar production during the year. But it could be too late for some players who could suffer damage in the meanwhile if misguided by inaccurate, but inspired, reports on production.

Poor statistics, often of doubtful authenticity, that seem to flow from government offices is the last thing the sugar market wants. Someone in the government needs to assume responsibility and remove the anomaly in production estimate.

Clear mismatch

In 2005-06 too, there was a clear mismatch between cane output estimate and sugar production estimate. After Business Line pointed out the anomaly, cane output estimate was raised, perhaps, to accommodate sugar production estimate. In any case, such uncertainties, that too coming from government departments, are not good for the orderly functioning of the market and merely fan speculative tendencies. The market needs more transparency.

There is no proposal to decontrol the sugar sector, according to the Minister of State for Food and Consumer Affairs. Indeed, there is no justification for the government to continue to have its vice-like grip on the industry. The sooner the industry is decontrolled (removal of levy obligation and free-sale quota) the better for the industry. The government has no business to interfere with sugar business any more.