Should we believe the sugar daddies?

Over the last few days, people of all hues - analysts, people from the sugar industry and our very own
Agriculture Minister – have been airing a shared opinion that sugar will be in surplus in the coming
sugar year (SY) 2011 (sugar year runs from October to September) and the country will once again
become a net exporter. However, to us, this seems more like wishful thinking and less as something
based on hard facts and sound logic.

Sugarcane acreage for SY09 was 4.25 million hectares (mh) as compared to 4.38 mh in the previous
year. This was 0.25 mh less than what had been earlier estimated for SY09. Total cultivated sugarcane
was 274.6 million tonnes (mt) for SY09 as compared to 285 mt for the previous year.

In SY09, India’s sugar consumption was 22.5 mt. Based on estimates obtained from the 2009 Annual
Report of Balrampur Chini Mills Ltd (BCML) (which has been sourced from the Indian Sugar Mills
Association), consumption in SY10 is expected to increase by 0.5 mt, to 23 mt. Assuming the same
trend, we expect sugar consumption in SY11 to be around 24 mt. Given the increasing prosperity,
increased spending in the rural areas and the increasing demand for beverages and confectionery items,
we must admit that this is a rather conservative estimate. To achieve this consumption level, sugarcane
availability to produce sugar only will have to be at least 240mt (at the sugar recovery of 10%). We
would of course need to produce more sugarcane to satisfy the demand for sugarcane from alternative
sweeteners such as Gur (Jaggery), Khandsari and direct consumption. According to the Department of
Food and Public Distribution, Ministry of Consumer Affairs, Food and public Distribution, these
account for around 35% of our total sugarcane production, or 70 to 100 mt of sugarcane on an average.
 Estimation of Sugar Surplus / Deficit for the year 2010 - 11
Particulars Unit 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Average 2010-11 2010-11
Est. Ideal Est.
Condition Normal
Condition

Cane Acreage Million 3.66 4.20 5.15 5.30 4.38 4.25 4.50 5.00 4.80
Hectares

Yield Tonnes per 64.95 66.95 69.03 68.00 65.00 64.61 66.40 66.00 65.00
Hectares

Sugarcane Million 237.08 281.17 355.52 360.40 285.00 274.60 330.00 312.00
Cultivation Tonnes

Drawal rate % 53.00 67.00 78.00 72.00 54.30 58.30 63.70 67.00 65.00

Sugarcane for Sugar Million 125.60 188.30 277.30 259.40 154.73 160.00 221.10 202.80
Tonnes

Recovery % 10.10 10.25 10.21 10.14 9.50 10.00 10.00 10.00 10.00

Sugar Production (A) Million 12.70 19.30 28.30 26.30 14.70 16.00 22.11 20.28
Tonnes

Opening Inventory Million 8.50 4.80 3.70 9.30 10.50 2.90 3.00 2.50
(B) Tonnes

Total Available Sugar Million 21.20 24.10 32.00 35.60 25.20 18.90 25.11 22.78
(C = A+B) Tonnes

Consumption (D) Million 18.50 19.30 21.00 22.50 22.50 23.00 24.00 24.00
Tonnes

Surplus / (Deficit) Million 2.70 4.80 11.00 13.10 2.70 (4.10) 1.11 (1.22)
(C - D) Tonnes

Source: Balrampur Chini Mills Ltd Annual Report 2009

Notes:
Colored box data are estimates provided in the 2009 Annual Report of BCML (which
have been sourced from Indian Sugar Mills Association / ULJK research).
Ideal condition assumes a favourable monsoon, with no environmental disaster.
However, many environmentalists are predicting that the La Nina effect will play out in
the coming year, which could cause flash floods.
* Drawal Rate - It is the ratio of sugarcane used to produce sugar to total cultivated
sugarcane. Rest of the sugarcane is used for making alternative sweeteners such as Gur,
Khandsari and direct consumption.
In the Table above, we have outlined 2 scenarios – Ideal estimates and Normal estimates. The first scenario
(2010-11 Ideal estimates) is based on highly optimistic assumptions, which are unlikely to be achieved. For
instance, we have taken the drawal rate at 67%, which is more than the average drawal rate of 63.7% for the
last 6 years, and far more than the estimated drawal rate of 58.3% for SY10. Besides, we have factored in an
increase in the sugarcane acreage of more than 10%, as compared to the average of 4.4 mh for the last 6 years.
Given the high food inflation and the remunerative prices that farmers have got by selling other crops, it seems
highly unlikely that farmers would switch to sugarcane. Of course, this will be clearer when the Ministry of
Agriculture comes out with the data on sugarcane acreage for 2011 next month. Further, the Indian
Meteorological Department has predicted the La Nina effect to play out next year, which could result in flash
floods and thus lead to reduced production of sugarcane.

The second scenario (2010-11 Normal estimates) is a more realistic scenario and therefore has a higher
probability of being achieved.

As can be seen from the Table, the Normal estimates indicate a deficit of 1.22 mt in SY11. Thus, unless
the Indians all of a sudden lose their penchant for the sweetener, India shall continue to remain a net
importer of sugar in SY11. However, this does not necessarily mean that sugar price shall remain high.
In fact, retail sugar prices have already come down from more than Rs 40 per kg to less than Rs 30 per
kg. With global sugar output expected to surpass consumption next year, the consumer could expect the
sugar cookie to be much sweeter next year.