The sugar situation in the 2013-14 fiscal could well turn out to be an alarming one, going by latest available evidence. Fraught with possibilities, the market risks going out of control in the coming season with the fundamentals of demand and supply set to tighten significantly. And in an environment of industry decontrol, there is little the policymakers can do to arrest runaway price rise except bring back some of the controls they had consciously discarded earlier.

Planted area for sugarcane for the current season is set to fall short of the 5-million-hectare mark compared with 5.2 million hectares in 2012-13. Planting for the upcoming season was completed by the end of April. Usually reliable private estimates suggest the area under cane cultivation would at best be 4.85 million hectares, markedly lower than in the previous year.

It is by now common knowledge that cane planting in Maharashtra has suffered a decline because of the acute moisture stress in key growing areas. The estimated area of 7.5 lakh hectares this year compares unfavourably with each of the previous two years, when acreage was closer to 10 lakh hectares. Karnataka is another State to suffer a fall in cane planted area with the latest estimate placed at 3.4 lakh hectares, a fall of at least one lakh hectares from each of the previous two years.

Weather over the next four months is a key risk. Temporal and spatial distribution of the South-West monsoon rains will pay a crucial role in affecting cane yields and juice content. In 2012-13, despite a record area of 5.20 million hectares, cane production was down by eight per cent to 336 million tonnes against the previous year’s 361 million tonnes from 5.15 million hectares.

So, aggregate cane production in 2013-14 runs the risk of a dip below the previous year and could probably test the 300 million tonnes mark. In such an event, there would not only be greater diversion of cane for gur and khandsari as it happens in years of cane shortage, but also a further fall in sugar production in 2013-14, perhaps closer to 23 million tonnes. Sugar demand in the country is closer to 24 million tonnes. The negative fallout of the emerging shortage can well be imagined and India may have to import sugar. Speculators will have a field day, while consumers may end up facing the wrong end of the stick, having to pay a high price for sugar. The Government will be forced to bring back some of the controls. Worse, once the world market gets scent of India’s dire situation and imminent import, prices are sure to surge 20-30 per cent in a matter of days.

Currently, raw sugar price is about 18 cents a pound, equivalent to about $400 a tonne, which can potentially go well over $500 a tonne.

This is precisely the situation New Delhi must seek to avoid facing, especially in an election year when consumer interest gains precedence over all else. Again, this is one of the reasons why a hike in customs duty on sugar imports as demanded by a section of the industry is unreasonable and unjustified. If anything, the Government must seriously consider importing at least 10 lakh tonnes, if not more, of sugar to create a buffer stock. Consumption demand for the sweetener during the festival months from July (Ramadan) to November (Diwali) will increase manifold, further eroding the stocks.

Published on June 6, 2013