India may import raw sugar in 2009

by Dave

The Economic Times

India will produce less sugar than it would consume this year. Normally this should be enough to make the bulls snort in anticipation of profits. But not this time. The red rags are too many. The crunch will come between April and September 2009. By April domestic production will grind to a halt, while consumption will show its normal summer increase as we beat the heat with colas and ice creams. Instead of building up stocks, we would be eating into them.

Since we still have some unsold sugar from previous years, there won’t be outright shortage. But sugar won’t be plentiful either. With just-enough supply, the natural tendency of traders is to push up prices by holding back just a little. Being an election year, it is unlikely the government will allow prices rise beyond a point. The big question is what will the government do to keep things in check.

The easiest way would be to allow unfettered import of ready-to-eat white sugar. The world market is waiting to pounce on the Indian market. ISO says out of the 34 mn t raw sugar that Brazil will produce this season, it can export almost 22 mn t. This is 17% more than last year. Ocean freights are so low, it costs just $18/t to ship sugar thousands of miles from Brazil to India. Traders at international trading houses here say at current New York prices, white sugar from Brazil can reach India at $340/t or about Rs 18/kg. In case the government allows white sugar imports, local mills can kiss life goodbye.

Hopefully, no government would be so foolhardy. Parties across the political spectrum know the value of farmer votes. They are also familiar with shrill industry cries. Plus, there is no escape from paying homage to the god of value-addition. So in all likelihood, next year, if prices climb, the government will allow only raw sugar import. Indian mills would be able to import Brazilian raw sugar, refine and sell it here. If there is no restriction on quantity, then imported raw sugar could swiftly solve our supply crunch.

It could also change the game. Brazilian raw sugar is currently at $260/t c&f. It can land in India at Rs 13/kg. After refining and processing, white sugar could easily leave the factory at Rs 16/kg. Of course, Brazilian prices may not stay so low by next year. But you get the picture. That’s why this route has a low happiness quotient for our mills.

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