India could become net sugar importer as early as 2013/14, bolster prices

Source : REUTERS
Last Updated: Fri, Sep 07, 2012 04:22 hrs

* Shift to imports would bolster global sugar prices

* India hit by first drought in three years

* Crops such as soybeans, wheat need less water

By Rajendra Jadhav

MUMBAI, Sept 5 (Reuters) - India, the world's largest consumer of sugar, is likely to become a net importer of the sweetener as early as 2013/14, as drought-hit farmers replace cane with less water-intensive crops.

The shift to imports, touted by market participants and analysts, would likely bolster global sugar prices, which have been hammered by surplus production at a time of muted growth in consumption due to a sluggish global economy.

India, the world's No.2 sugar producer after Brazil, last imported the sweetener in 2009/10, sending global prices to 30-year highs.

"Farmers in (top sugar-producing Indian state) Maharashtra are very interested in cane, but water is not available," said Balasaheb Patil, former president of the Maharashtra Co-operative Sugar Factories Federation.

"In some areas farmers are walking miles and miles just to get drinking water ... forget cultivating crops."

India has been blighted by its first drought in three years, with monsoon rains likely to be less than 90 percent of the long-term average and with the rainfall deficit in some cane-growing areas as high as 30 percent. That has dealt a blow to Asia's third-largest economy, where more than half the farmland lacks irrigation.

The full force of the impact from farmers switching to crops such as soybeans and wheat, which need less water to cultivate than sugar cane, is likely to hit in the 2013/14 season as cane usually takes 12-18 months to mature.

India's sugar year starts on Oct. 1 when fields dry after the monsoon and crushing of the cane crop traditionally starts.

Politics could also be a factor in boosting imports in the sugar-loving country, where people celebrate festivals with a vast range of sweets from cashew burfi to juicy rasgullas.

Analysts say that a 10 percent duty imposed on imports in July this year to protect local sugar millers, who were struggling to pay farmers cane arrears, could be scrapped in the run-up to a general election slated for 2014.

"The 2013/14 season partially falls in an election year. Keeping (local) food prices lower will be the government's first priority ... obviously it will remove import duty," said a senior industry official in Mumbai, who declined to be named.

Indian white sugar is currently quoted at more than $70 per tonne over global prices, but imports have been limited by the 10 percent duty.

They will become viable the moment India scraps the tax, said Kamal Jain, managing director of sugar brokerage Kamal Jain Trading Services.

Key October sugar futures in India were down 0.38 percent at 3,634 rupees ($65.31) per 100 kg at 0829 GMT on Wednesday, after hitting a contract high of 3,701 rupees last month, helped by festive demand.


Poor rainfall in the country's top five cane producing states will trim yields in 2012/13, with consultancy Kingsman SA last week cutting its estimate for India's total sugar output in that season to 24.25 million tonnes from 25.5 million tonnes. Local demand is usually pegged at around 22 million tonnes.

"Although the monsoon rains in India have picked up in the second half of August, large cane areas in central Maharashtra have been damaged beyond recovery," Kingsman analysts wrote in a report.

Others were even more pessimistic as more than 8 million tonnes of cane has been diverted to be used as fodder in Maharashtra, with the drought also hitting fodder supplies.

"The way sugar output in Maharashtra is expected to go down, I think India can produce around 23 million tonnes in 2012/13," said an official at a leading private sugar miller in India.

Any drop will roll over into the next season as it will ultimately bring down opening stocks for 2013/14, said Ashok Jain, president of the Bombay Sugar Merchants Association.

"In 2013/14 pressure will remain on supplies due to lower carry forward stocks and thin output. Then prices are likely to rise significantly," he said.

A lack of water is also likely to push farmers away from second harvests grown from the stubs of cane roots, known as ratoon. Indian cane growers typically take one ratoon crop as they give equally good yields, while the cost of production remains lower than the first year.

"We can see many farmers uprooting cane after first harvest in 2012/13. They may not go for ratoon due to water scarcity," said former industry body head Patil. "This will slash cane supplies in the 2013/14 season."

($1 = 55.6450 Indian rupees) (Editing by Jo Winterbottom and Joseph Radford)

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