After lentils, sugar could spell the next set of food-inflation woes as a drought-induced deficit means India may have to turn to imports for the first time in six years.
Prices are firming up already. The wholesale inflation rate for May, the latest month for which data are available, shows sugar prices rose 22% compared to a year-ago period.
India’s is the world’s second-largest sugar producer, after Brazil, but also the largest consumer. Household demand accounts for barely 30% of consumption. About 70% of the sweetener goes into food products, like biscuits, beverages and snacks.
Output in the 2015-16 sugar season has ended up way below average. A back-to-back drought has trimmed harvests in two of the country’s biggest producer-states, Maharashtra and Uttar Pradesh.
Maharashtra’s output is estimated to fall to 6.5 million tonne from 8.3 million tonne a year earlier, according to a forecast by the Maharashtra State Cooperative Sugar Factories Federation Ltd. Second-biggest producer UP’s output is estimated to decline to 6.8 million tonne in 2015-16 from 7.1 million tonne in the same period.
India’s lower output also coincides with a global deficit, with China and Thailand reporting lower output too.
Fresh estimates from the start of the 2015-16 sugar season until April 30 -- when most mills in the country finished processing most of their cane stock -- show millers have produced the smallest sugar stock in four years. They produced 24.6 million tonne, down 11% when compared to 27.6 million tonne of the previous year’s corresponding period.
Despite the shortfall, the government doesn’t think imports are required at this stage.
“Full final estimates may take some more time. India should have a total stock of 30-31 million tonne at the end of the sugar season in October, which should suffice until the next stocks arrive. The government is taking all precautions,” an official said.
For now, the government has taken key policy steps to tame prices. On Thursday, the government decided to impose a 20% duty on sugar exports.
Food minister Ram Vilas Paswan suggested a 25% duty to discourage overseas sales. The ministry has also imposed stock holding limits, which is an anti-hoarding measure under which traders cannot stock very large quantities. The government also rescinded a rule requiring mills to compulsory export surpluses.
At the retail level, in May, prices of sugar and sugar products rose nearly 15% while food prices quickened to 7.5%, sharper than April’s 6.4% rise.