The two years of drought and climate-related challenges are creating a whiplash in sugar prices as largest producer Maharashtra struggles to supply the nation. And though as households, we spend only 3% of our monthly food budget on sugar, eventually we also pay for the more expensive sugar in ready-to-eat foods, ice creams, sweets, snacks, cold drinks, confectionery, and restaurant meals. The food and hospitality industry, which buys 65% of the country's sugar, passes on the price increases to us.
Maharashtra, which contributes a third of India's total supply, is expected to produce 40% less sugar in 2016-17. In Karnataka, production is down 44% due to the drought. Together, that is loss of sugar enough for two months consumption.
Due to the acute water scarcity, farmers in these two states did not plant new sugarcane crop in 2016-17. The ratoon crop also yielded less juice. At least 45 sugar factories in Maharashtra shut operations early because no cane is available. The rest will shut in the next one-and-a-half months. Since the slack in Maharashtra and Karnataka will not be compensated by the increased production in Uttar Pradesh, India may fall short of sugar to meet demand. By September end, when the 2016-17 sugar marketing closes, we are likely to be left with stocks enough for only 47 days. This will be the lowest in several years.
In Uttar Pradesh, mills have produced 10% more sugar than last year and sales are brisk. As a result, farmers are being paid at least 75% of their bill within the 15-day deadline. The delayed payments are mainly by corporate groups with high debt and poor cash flows.
While farmers and mills are coping well, consumers are less fortunate. The tight supplies have pushed up retail prices to above Rs 45kg in the metros just four months into the new sugar marketing year. Industrial consumers are also paying more in the wholesale markets. Sugar was 28% more expensive in December compared to the same month in 2015, shows latest Wholesale Price Index data.
Luckily, ample sugar is available in Brazil, the world's largest producer and exporter. If customs duty is removed, raw sugar can reach India at Rs 40kg. That should provide much-needed relief to consumers.But the window of opportunity to import affordable sugar is small since global prices have risen 15% in the last one month and 41% in last 12 months.
These tactical actions will not, however, address the stark reality that India will remain in this hand-to-mouth situation for several years ahead due to the combined challenges of rising consumption, water scarcity and climate change. Political intervention has further queered the pitch by distorting market signals that would have otherwise ensured more efficient water, land and capital utilization. And consumers aren't the only ones affected. Sugar industry is a key source of rural income and jobs.So making the industry more competitive overall is the only way to spread sweetness and light.
Source: timesofindia.indiatimes.com