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RISING DEMAND MAKES INDIA A SUGAR IMPORTER

Posted by Gilmour Poincaree on November 11, 2008

11 Nov 2008, 0152 hrs IST, Prabha Jagannathan, ET Bureau

NEW DELHI: India, the world’s largest consumer and second-largest producer of sugar, is turning into a India, the world’s largest consumer and second-largest producer of sugar net importer of the sweetener as growth in population and household incomes leads to higher consumption and forces the country to meet domestic demand from other nations.

Sugar consumption has increased by two million tonnes in the past two years, pushing up the annual domestic consumption to about 23 mn tonnes from only 19 mn tonnes in 2005-06. Consumption is growing by over 4% annually, but the government prefers to keep tightlipped about it and pegs the annual sugar consumption at only 21 mn tonnes.

This means domestic consumption will surpass the projected output (22 mn tonnes at present) for the 2008-09 year, paving the way for sugar imports and sharpening domestic sugar prices for both industrial and retail consumers. Analysts have already projected that India will be a sugar importer from the 2009-10 sugar year.

In February this year, the core platform for private sector sugar units, the Indian Sugar Mills Association (ISMA), hiked its domestic consumption figures from 19 mn tonnes to 21 mn tonnes, against an overall production level of 28.4 mn tonnes. It also projected domestic sugar consumption levels for 2007-08 sugar year to at least 22.5 mn tonne, up from the official figure of 21 mn tonnes.

Keeping domestic sugar consumption level low would mean that the carryover stocks from last year would be lower by two million tonnes, at about 9 mn tonnes. Compared to the lower government figures, industry estimates for 2007-08 sugar year (Indian Sugar, September 2008) are that internal consumption was a whopping 22.5 mn tonnes (against production of 26.3 mn tonnes and availability, including carryover stocks, of 35.5 mn tonnes) compared to 21 mn tonnes in 2006-07 and 18.5 mn tonnes in 2005-06.

Lower carryover stocks and the projected low sugarcane output projected for 2008-09 could spell high domestic sugar prices, something that the poll-bound UPA government would prefer not to face in the first half of next year when general elections are held.

Sugar prices are among the most sensitive of election issues and the fact that the domestic prices have shot up from around Rs 15/kg in the retail market earlier this year to around Rs 20/kg now has already forced the Centre to pull out all stops to boost open market availability and drag down or at least hold prices.

Ironically, most recent studies show that sugar consumption has gone up significantly on account of industry (such as ice creams, soft drinks, pastries, chocolates and the pharma sector) and not on account of domestic consumption by the economically weaker sections for whom the government commands 10% of the production by mills for levy sugar.

That domestic sugar consumption was growing at a rapid pace was acknowledged as early as the Mahajan committee report, which showed progressive increase from 11.2 mn tonnes (1991-92) to 13.0 mn tonnes (1995-96), except for 1993-94 when there was steep fall in output. Consumption, the report held, increased by 64.78% between 1984-85 and 1995-96 at a healthy 4.31% per annum.

The report also observed a fall in the share of expenditure on sugar in rural areas and a much higher increase in sugar expenditure in urban areas. And that was a whole decade or more from today, when the consumption of processed foods and soft drinks has more than doubled.

More recently, the Tuteja committee report also observed that India’s consumption went up annually in a marked manner — from 16.7 mn tonnes in 1999-00 to a significantly higher 17.4 mn tonnes in 2000-01 and to 17.9 mn tonnes in 2001-02. Between 1996-97 and 2001-02, India’s consumption of sugar as a percentage of world consumption went by from 12.4% to 13.4%.

In June 2007, a KPMG report held that in the share of total sugar consumption, the share of gur and khandsari declined. Industrial (dairy, confectionery, bakery and beverages which accounted for 5.26 mt or 30% of non-levy share), small business and high-income household segments accounted for 74% (13 mn tonne) of the total non-levy sugar consumption of 17.52 mn tonne in 2006-07.

According to the report, per capita sugar consumption, which went up with rise in per capita income, stood at an average 2.2 kg/month at the lowest income level, while at the highest income levels, the average household sugar consumption was at 5.11 kg per month.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘THE INDIA TIMES’

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