The Hindu Business Line : Cut in sugar output estimates positive

Expectations of a 15 per cent fall in domestic sugar output to 220 lakh tonnes, estimated for the next sugar season 2008-09 (October to September), may be positive for sugar producers over the medium term.

The perceived fall in sugar output may lend some support to domestic sugar prices. A higher support price for foodgrains such as wheat has reportedly tilted the economics for the farmer in favour of alternative crops; this is expected to shrink the area under sugarcane.

Medium term support

This drop in sugar output, if it materialises, will follow an 8 per cent decline in sugar output for the ongoing season, for which output is estimated at about 260 lakh tonnes. This is already well below original expectations of 310 lakh tonnes.

The new output estimates may lend support to sugar prices in the domestic markets over the medium term, especially if exports continue to remain strong.

The reversal in sugar output comes after two consecutive seasons of high production, which has contributed to a significant build-up of inventories with producers and a steady decline in sugar prices, as a result.

Cane price the key

However, the respite to producers may not be much in the near term. Estimated at 100 lakh tonnes (5-6 month’s consumption) for this season, the carryover stock for sugar continues to be at comfortable levels. Higher free sale releases by the Government to curb inflationary tendencies, may also keep prices under check in the short term. Output and price trends apart, the policy on pricing of cane will be a key factor that will have a material impact on the sugar producers’ return to profitability.

In this context, a recent recommendation by the Commission for Agricultural Costs and Prices has suggested a hefty hike in the statutory minimum price for sugarcane procurement for the next season. If accepted, this could sharply peg up input costs for sugar companies next year.

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