Drought spiral: Sugar output falls, prices of pulses may remain high

India’s sugar and cotton output is showing signs of falling for the first time in five years and insufficient pulses production could keep prices high, early estimates showed in the midst of a crippling drought across a vast swathe of the country.

However, the country will still have a surplus of cereals despite back-to-back drought trimming overall foodgrains output from normal-year levels.

Sugar output is projected to fall between 8% and 10%. India is the world’s second-largest producer of the sweetener and also the biggest consumer. Cotton production has already dipped 10%, figures for April show.

Sugar output has been hit the hardest in Maharashtra and Karnataka, two states worst-affected by drought. According to the Food and Agriculture Organisation, over 35 million farmers grow cane, making up 7% of the rural population.

A 14% deficient monsoon has caused a severe drought in 256 of the country’s 640 districts, or about 40% of the country, stoking a challenging rural distress for the Modi government.

The agriculture ministry expects a slightly higher pulses output of 17.33 million tonnes in 2015-16, compared with the previous year’s 17.15 million tonnes, but it is still short of the 27 million tonnes needed. The gap is mostly met through costly imports, which keep prices high.

In February, retail pulses prices rose 37%, in contrast to wholesale prices falling for the 17th month in a row in March. Contradicting the government’s projections, Ajay Saraf, an analyst with the firm ComTrade, said: “We expect pulses output to be lower than last year’s.”

The food ministry had asked states to submit their expected pulses demand. On Thursday, the government decided to distribute 10,000 tonnes to states from a 55-lakh tonne newly-created reserve, anticipating shortages. The government has also asked state authorities to monitor price movements.

Estimates of the Indian Sugar Mills’ Association show output between October last year and April 15 stood at 24.3 million tonne, about 2 million tonne short than the 26.4 million tonne during the previous year’s corresponding period. ICRA, an investment firm, foresees a steeper sugar shortfall of 10% in 2016, the firm said in a review.

In 2015-16, the country’s cotton output stood at 34.1 million bales of cotton (of 170kg each), against 38.2 million bales, according to data from the Cotton Association of India.