New Delhi: India looked set to decide on Tuesday to allow 200,000 tonnes of sugar exports -- less than half expected, as its concerns over high domestic food prices muffled industry calls to try to capitalise on global prices.
The world’s second-largest producer and biggest consumer of sugar has spent months deliberating on the exports -- a tiny drop in its total output of over 24 million tonnes in 2011 but a political watershed after drought forced it to import in 2009/10.
Exports of sugar, subsidised by the state and a major source of energy for the country’s half a billion poor, have trickled out in special deals so far but these sales would be under Open General Licence (OGL), with only a volume limit restriction.
But given the small amount and the government’s dithering for almost three months now, these exports are unlikely to have a major impact on domestic or global prices -- already slipping from February’s record highs as supply concerns ease.
“The quantity is too meager to have any impact here or overseas. Secondly, the issue has been hanging in balance since December (2010). Almost everyone has factored this in,” said Dharmander Bhayana, who owns Sugrain Trading LLP.
Industry sources said finance minister Pranab Mukherjee favoured allowing only 200,000 tonnes of exports to avoid any further spike in high domestic food prices while the government is still waiting for concrete estimates of output in the new season that began in October.
If the government does allow exports of 200,000 tonnes it would be due to high output projections and because food prices, though still hovering just under double-digit, have eased from a year high seen in end-December 2010. Food inflation, at 9.4% in early March 2011, is expected to soften further.
New Delhi, however, has an eye to state elections later this year and food security is a key issue, with plans for legislation to boost supplies to the poorest Indians and improve infrastructure as wheat and rice remains stockpiled and rotting.
Back in December 2010, farm minister Sharad Pawar first said mills could export 500,0000 tonnes under these OGL terms, where exports are not linked to previous imports.
The issue was later referred to a panel of ministers.
Bhayana said the delay in allowing OGL exports had deprived Indian sugar mills of higher export realisation as global prices dropped from a 30-year-high in February 2011.
“With the slide in international prices, export gains will be very limited. The export will only be symbolic,” Bhayana said.
Benchmark global prices have dropped in line with a freefall commodity prices after tsunami hit Japan. On Monday, New York’s May raw sugar contract shed 0.23 cent to close at 27.48 cents per lb. London’s May white sugar futures fell $4.30 to end at $706.30 per tonne.
A senior industry official said any decision to permit exports might stoke domestic prices in the short term.
“Any jump in Indian prices will only be due to sentiments rather than any fundamental. Any rise in domestic prices will not be sustainable,” said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories, a producers’ body of 250 mills.
Domestic sugar prices have fallen roughly a third in the past one year on strong output projections.
It was not immediately clear where the bulk of the exports could go, but import demand has been strong from countries in the Middle East.
Japan’s devastating earthquake and tsunami have damaged two sugar refineries, but traders and industry officials said they did not expect any drop in sugar exports to Japan.
Traders had rather expected Japan to import more sugar in 2011 to offset falls in domestic production in Hokkaido, hit by excessive rainfall late in 2010.
The Indian government believes 2010/11 output will be 24.5 million tonnes, 500,000 tonnes lower than the estimate of the Indian Sugar Mills Association, another producers’ body.
Demand should be 22 million tonnes, industry figures suggest.