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Sugar may taste less sweet as prices to go up this summer

Output in India, the world's second largest sugar producer after Brazil, fell 3% on year to 29.96 million tonne in the first six months of the 2022-23 marketing year, as per Indian Sugar Mills Association.

Ex-mill sugar prices have shot up by at least 300 rupees a quintal in Uttar Pradesh and 150-200 rupees per quintal in Maharashtra over the past three weeks. (Photo: Bloomberg)Premium
Ex-mill sugar prices have shot up by at least 300 rupees a quintal in Uttar Pradesh and 150-200 rupees per quintal in Maharashtra over the past three weeks. (Photo: Bloomberg)

New Delhi: For the past three weeks now sugar prices in the country have been rising and will likely hit new highs going ahead, as production looks set to fall amid increasing demand from bulk consumers during the peak summer season, according to market and industry experts.

The All-India Sugar Trade Association in February had revised lower its sugar production estimate for the 2022-23 marketing year that runs from October to September to 33.5 million tonne from 34.5 million tonne projected earlier. The drop in output was confirmed by food secretary Sanjeev Chopra last week. He cited unseasonal rainfall in Maharashtra for a possible shortfall of 200,000-300,000 tonnes from an initial estimate of 38.6 mt, including diversion of sugar to produce ethanol.

“We were aware of the lower production of sugar. The market has suddenly woken up after the early closure of mills in Maharashtra and Karnataka, creating concerns over supply tightness in the domestic market," an agribusiness veteran said, requesting anonymity.

Ex-mill sugar prices have shot up by at least 300 rupees a quintal in Uttar Pradesh and 150-200 rupees per quintal in Maharashtra over the past three weeks. 

“Prices in Maharashtra and Karnataka are seen to go up by another 200 rupees a quintal in coming two weeks as east and northeastern states turn to the state from Uttar Pradesh to meet their demand," the industry expert said on the condition of anonymity. “The rise in price will, however, be reflected across the country."

Output in India, the world's second largest sugar producer after Brazil, fell 3% on year to 29.96 million tonne in the first six months of the 2022-23 marketing year, as per Indian Sugar Mills Association.

Many mills, that keep crushing sugarcane until monsoon arrives in the country by June-July, have wrapped up operations early due to less availability of cane in Maharashtra and Karnataka, according to data from National Federation of Cooperative Sugar Factories. About 190 mills in Maharashtra and 71 in Karnataka have stopped crushing.

The early closure of mills in these major producing states hint at a decline in India's overall sugar output. Production in Maharashtra is now expected at 10.5 million tonne compared to 13.8 millon tonne earlier. In Karnataka, production is likely to fall to 5.6 million tonne from 6.3 million tonne. With this, many in the industry estimate India's sugar production in 2022-23 to fall to as low as 32.5 million tonne.

On top of it, export of 6 million tonne and diversion of 5 million tonne sugar to manufacture ethanol have added to the supply concerns. Export deals for the entire 6 million tonne have already been contracted. This means 11 million tonne from an estimated 32.5 million tonne will not be available for domestic consumption, that has grown 2.2% year-on-year to 27.5 million tonne.

"Additionally, predictions around El Nino indicate that the day temperature will be very high," said Prakash Naiknavare, managing director of National Federation of Cooperative Sugar Factories, quoting the US weather department’s February forecast on El Nino. This, Naiknavare said, has fuelled purchases by industrial consumers such as makers of candy, biscuit and beverages, and ice cream and cold drink manufactures.

“A sudden demand from the industrial buyers, which accounts for about 65%, has been witnessed amid El Nino fears. Summer demand from industrial buyers typically kicks in small tranches from March onwards to cater to the summer demand. However, the likely supply concern has driven them to buy the commodity in bulk quantities, which pushed up the sweetener prices," he added.

The Australian Bureau of Meteorology has forecast “a 50% chance that an El Niño may develop later in 2023". This is “about twice the normal likelihood", it said in its March 28 report, adding that “warmer than average SSTs (sea surface temperatures) have emerged in parts of the eastern tropical Pacific in recent weeks". 

Private weather forecaster Skymet on Monday said that India is likely to get "below normal" monsoon rains in 2023 with increasing chances of El-Nino, which typically brings dry weather to Asia. The India Meteorological Department is scheduled to issue its first long-range forecast of rainfall for the 2023 southwest monsoon soon.

This does not bode well for next year's production as well because cane is a water-intensive crop.

Today, medium-sized, or M grade, sugar sold at 3,590-3,750 a quintal in Uttar Pradesh, while small-sized, or S grade, sugar was priced at 3,340-3,400 per quintal in Maharashtra and 3,320-3,360 in Karnataka.

The rise in prices in Maharashtra and Karnataka has been less steep compared to Uttar Pradesh because sugar mills in these two states are run by cooperatives and are financially weak. However, east and northeastern states will soon shift their purchases to Maharashtra and Karnataka, to take advantage of lower prices, and in turn push up rates there as well, traders said.

The rise in mill-gate prices will be passed on to retail consumers eventually. The increase in retail prices may take about 20-30 days when the fresh batch comes into the supply pipeline. All-India average retail sugar prices were at 41.18 per kg on Sunday compared to 40.9 the corresponding period last year, , according to data from consume affairs ministry. Currently, there is a 7 a kg difference between mill and retail prices, including transportation cost, GST etc.

Retail prices of sugar are at the same level it was last year during the same time. If prices of sugar rise, the government has its way to intervene in the retail market and cool down prices. There is nothing to worry about it yet, the food ministry said in a response to a Mint query.

“Prices of ex-mill sugar is expected to touch 4,000 rupees a quintal by June unless the government intervenes. If prices hit this level, retail prices are seen going up to 43-44 a kg," said Tarun Satsangi, agriculture research head at Origo Commodities India Pvt Ltd., an agri-tech company. “However, it will depend on how monsoon and El Nino influences weather."

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Updated: 10 Apr 2023, 06:20 PM IST
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