The price of sugar in the retail market of India peaked around Rs 45 per kg and probably heading towards Rs 50 in the near-term. Last year, the sweetener prices were hovering around Rs 25 to Rs 30. The price gain has been excessively high in the year 2016 highest in last one decade. Sugar prices have increased due to considerable fall in production in the last year. In the year 2015-2016 India’s sugar production declined to 25 million tonnes down by 11 per cent from the preceding year. The preliminary estimation for the year 2016-2017 production of sugar is further down.
As per trade source, various agencies and median estimation, the new season crop may be around 23 to 23.50 million tonnes. The major reasons for lower production of sugar in India for the past three consecutive years are reduction in cultivation of sugarcane. As per government data this year sugarcane acreage is lower than the last year. The latest report suggests India’s sugarcane acreage is around 46 lakh hectare down by 7 per cent from the last year. In addition cane farmers have switched to other crops due to non-payment of arrears. Besides, the expectation of rise in demand has led to some traders hoarding stocks.
Further from the global front, the year 2015-16 stood considerably tight for the global sugar balance sheet. A large drop in production by the major producers hit global supply. As per the latest data, the top three producers had a significant drop in sugar production. As per USDA and other agencies estimates, Brazil sugar production was down by more than over 20 per cent in 2015-16 to stand at 34.50 million tonnes. Early estimates for 2016-17 show Brazil sugar production even lower than 34 million tonnes.
(The author is Aurobinda Gayan, vice-president research at Kotak Commodity Services)