India's sugar story is turning soar, at least in the short-term. The annual sugar production is expected to fall to 12.5 million tonnes during the current sugar season (October-September 2004-05) as against 14 million tonnes recorded last year.The ensuing festive season in India may not go down well as the shortfall in output will put pressure on prices at the domestic level. ‘‘India is likely to end the sugar year in September with stocks of 4.5 million tonnes, sharply down from 8.5 million a year earlier,’’ Bajaj Hindustan CEO Kushagra Bajaj said while unveiling the company’s results recently.However, don’t lose heart, notwithstanding the monsoon fury, experts are expecting a rebound in output in the next fiscal. ‘‘The current season has been a bad year for the sugar industry. Farmers have lost heavily as most of the output was infected. But the output will bounce back to 17.5 million tonnes in the new year from October 2005 due to many precautionary measures undertaken by the farmers,’’ says an analyst with a commodity trading firm.However, he agrees that the latest flood situation in Gujarat and Maharashtra would hamper production in the coming season.Reflecting the trend, prices for sugar contract on NCDEX rose from Rs 1,788 (per 100 kg) on July 1 to Rs 1,847 on July 30. The rise in prices is definitely not going to affect the consumers’ taste buds. Domestic sugar consumption has risen from 17.45 million tonnes last year to 18.5 million tonnes this year. It has been predicted to rise further to 19 million tonnes next year.In the event of a crop failure, closing stocks (as a percentage of consumption) decline and push sugar prices up. Due to crop failure in Maharashtra, Andhra Pradesh and Tamil Nadu in 2004, sugar inventory had declined significantly. The depleting stocks would cap the downside in sugar prices from the current levels.Moreover, certain factors like export of sugar from India to fulfill re-export obligations against import of raw sugar and damage to the sugar cane crops due to floods in Gujarat and Maharashtra would put upward pressure on the prices.Food and Agricultural Organisation (FAO) is bullish about India’s sugar output. With sugar productions in India and Brazil estimated to rise by 34 per cent and 5 per cent, respectively, in the ’05-06 sugar season (October-September), FAO has revised upward its previous estimate on world sugar output for the season from 145.1 million tonnes to 150.9 million tonnes. But, thanks to floods, Indian commodity experts are keeping their fingers crossed about the FAO forecast.
