Mumbai: Reeling from dire monsoon rains that mean India has no choice but a second consecutive season of sizeable sugar imports, traders are now starting to price in a likely third year in 2010-11 as farmers fail to sow more sugar cane.
Despite the strong economic incentive offered by millers as cane prices race to historic highs, farmers in the world’s biggest consumer nation face a range of disincentives for planting more cane: the rising price of shorter-cycle food crops; the need for captive buyers, limited in number; and the scarcity of water.
Taken together, those factors are likely to delay a supply recovery, supporting a price surge caused by expectations that this year’s crop—smallish to begin with, then choked by delinquent monsoon rains—will again fail to meet demand.
“The 2010-11 crop will be better, but we will still need to import. That’s for sure,” said Kushagra Nayan Bajaj, joint managing director of Bajaj Hindusthan Ltd, the country’s biggest producer.
Few analysts are prepared to put a number on imports that are at least 15 months away, but even modest purchases would threaten to add more fuel to raw sugar futures that rocketed to a 28-year-high last week, while refined sugar hit a record.
Indian spot sugar prices also set new highs last week on robust festive demand and thin supply.
The country has contracted to import an estimated 2.9 million tonnes (mt) in the year to September, an abrupt shift from years as a net exporter of the sweetener, and analysts and traders expected another 4.5 mt in the coming year in order to meet demand of some 24 mt a year.
The government blames the weather.
“Rains have changed the situation, otherwise there would have been more acreage under cane this year,” Union agriculture minister Sharad Pawar had told lawmakers in Parliament earlier this month.
However, top sugar industry officials have promised to help the government ease the domestic shortfall in the commodity, Pawar told reporters on Monday.
“Industry’s attitude was quite constructive. They are ready to find a solution to do away with shortage,” the minister said after meeting top industry officials. He did not say what steps the government or industry may take to reduce the shortage.
Meanwhile, the country was believed to have bought 62,700 tonnes of white sugar from Thailand so far this year. Traders said they expected it to buy more from Thailand to offset falls in production.
Apart from Thailand, India also sought white sugar from millers in West Asia, traders said.