The Hindu Business Line : Sugar output may turn out to be less than current estimates

Industry representatives project 18 million tonnes (mt) as production and some estimates place the output even higher. In 2004-05, sugar production was 13.5 mt.

In other words, there is likely to be not less than 4.5 mt increase in sugar production in 2005-06 over the previous year, according to industry players.

On what basis such an estimate of sugar production (18 mt, and even more) is made is a mystery. Is there enough cane available this season for production of 18 mt sugar? Sugarcane output estimate for 2005-06 released by the Ministry of Agriculture falls far short of cane required to produce 18 mt sugar.

According to Agriculture Ministry statistics, cane output in 2004-05 was 232 mt, from which 13.5 mt sugar was produced.

For 2005-06, the government estimate of cane output is 258 mt, or an increase of only 28 mt more than in the previous year.

Assuming that the entire quantum of incremental output is crushed for sugar and recoveries are good, 28 mt of additional cane can at best yield 2.8 mt of additional sugar for 2005-06, taking the total sugar production to 16.3 mt in 2005-06.

Some additional assumptions can be made too - like lower diversion of cane for alternative sweeteners (gur and khandsari) and higher recovery than is normal. Even then, it seems inconceivable how sugar production could register 18 mt.

Obviously, either cane output estimate (258 mt) is understated or sugar production projection (18 mt) is overstated. The policymakers have to revisit the numbers so as to be able to reconcile the obvious incongruity.

Reports from producing centres point to robust crushing activity. It should surprise none because the months from November to February have always been peak period for sugar production.

The production numbers are clearly front-loaded, given the seasonal nature of crushing activity. It would be erroneous to assume that the same level of sugar output would be obtained after February/March.

Financially, many sugar mills have done rather well over the past 12 months.

Fresh investment is flowing into the sector and new capacities are being established, providing proof of the optimistic outlook for the sugar sector.

Tightening domestic supplies and attractive open market prices have combined to considerably improve the financial position of many mills. Raw sugar imports have helped utilise refining capacity.

It is also highly likely that the production estimates for 2005-06 are overstated deliberately because the time has now come for the industry to meet its export obligation. World market prices are extremely attractive following a bull run in recent months, driven by huge demand for ethanol from cane.

The present time is perhaps the best for Indian importers to fulfill their export obligation.

Projection of a large increase in domestic sugar output would help keep the domestic market on a tight leash and allow them to reap the benefit of high international prices.

If one went by the Government's cane output estimate, the country is unlikely to be able to produce 18 mt sugar, leave alone more.

Indeed, production could actually turn out to be less than the estimate.

There are also doubts about the authenticity of the so-called `opening stocks' for the current season.

In the event, the sugar market has a strong upside from current levels. Open market sugar prices could breach Rs 2,000 a quintal by mid-February and keep moving up relentlessly. Meeting export obligation would lead to further tightening of supplies.

One should not be surprised if the country is forced to import about one million tonnes of raw sugar in 2005-06 to meet the demand-supply gap.