Sugar season stares at lower stock due to bumper exports
India is expected to start the 2021-22 sugar season from October with an opening stock of about 8.7 million tonnes, which will be the lowest in four years.
Despite that, sugarcane farmers will still have to be paid over ~5,000 crore as arrears for the crop supplied by them.
The record drop in opening stock is largely due to bumper exports of almost seven million tonnes and diversion of 2.1 million tonnes of sugar for manufacturing ethanol. Though the opening stocks are much lower than the previous year, they are still higher than the normative levels — equivalent to two months’ consumption that is necessary to keep supplies steady.
Supplies will also be steady because in 2021-22, production is expected to be about 31 million tonnes, similar to the current year’s production of 30.9 million tonnes, even after accounting for the 3.4 million tonnes diverted for producing ethanol, according to the Indian Sugar Mills Association (ISMA).
According to ISMA estimates, in 2021-22 sugar production is expected to be 11.9 million tonnes in Uttar Pradesh, 12.1 million tonnes in Maharashtra and 4.87 million tonnes in Karnataka. Other states are expected to produce 5.46 million tonnes.
Overall, around 5.45 million hectares have been brought under sugarcane this year in India, 3 per cent more than the current season.
ISMA said in the ongoing season that ends in September, around 2.1 million tonnes have been diverted towards ethanol.
“In 2021-22, since the target of 10 per cent blending is expected to be achieved, about 4.5 billion litres of ethanol would be required, 1.17 billion litres more than the expected supplies in 2020-21. Assuming that most of the additional quantity of 1.17 billion litres will come from sugarcane juice and B-heavy molasses, it will translate into diversion of about 1.3 million tonnes of more sugar as compared to the previous year. This would mean a total of 3.4 million tonnes of sugar will be diverted into ethanol next season,” it said.
Exports
India’s sugar exports in 2021-22 are expected to touch 6-7 million tonnes, almost at the same level as this year. But, a crucial differentiating factor is expected in the coming year. Exports might be without any subsidy requirement as global prices are expected to remain high.
Trade sources said if international raw sugar prices stay around 20-20.5 cents per pound, exports from India will become viable without subsidy. In the coming season around 0.9 million tonnes of sugar have already been contracted for exports without subsidy.
“Exporters have already entered into contracts to ship sugar for the next season without waiting for the announcement of government subsidy, as it is now economically viable to export sugar even without the subsidy,” rating agency Crisil said in a research report.
Brazil drought
The international sugar market is expected to remain favourable for India at least till Marchapril 2022, due to lower-thanexpected Brazilian output after one of its worst droughts.
Reports say Brazil, the world’s largest sugar producer, is expected to grow just 29 million tonnes in the 2022 season as against 41 million tonnes in 2021. India, the second largest producer, stands to gain as a result.
“Global white sugar prices started rallying in the beginning of August and had reached a four-and-a-half-year high of $504 per tonne as on 17th of the month, up 28 per cent year-onyear. Inclement weather is affecting sugar production in Brazil and this, in turn, is expected to impact global supply in the upcoming 2021-22 sugar season (October to September),” the Crisil report said.
Global sugar prices are projected to rise up to March 2022 as supplies are expected to be in deficit despite the third wave of Covid-19 gripping Australia, Europe and the US, Crisil added.
Domestic markets
Not only internationally, but sugar prices in the domestic markets are also expected to remain firm in 2021-22 season. Crisil estimated that in 2022 low inventories and higher export could trigger a 11 per cent yearon-year price rise in the domestic markets.