Rising Population makes India a sugar importer

INDIA, the world’s largest consumer and second-largest producer of sugar, is turning into a 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 million tonnes from only 19 million 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 million tonnes. This means domestic consumption will surpass the projected output (22 million 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 million tonnes to 21 million tonnes, against an overall production level of 28.4 million tonnes. It also projected domestic sugar consumption levels for 2007-08 sugar year to at least 22.5 million tonne, up from the official figure of 21 million tonnes.

Keeping domestic sugar consumption level low would mean that the carryover s t o c k s from last year would be lower by two million tonnes, at about 9 million 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 million tonnes (against production of 26.3 million tonnes and availability, including carryover stocks, of 35.5 million tonnes) compared to 21 million tonnes in 2006-07 and 18.5 million tonnes in 2005-06. Interestingly, the closing stocks for the year (as on September 30, 2008) are pegged at only 8.2 million tonnes compared to a higher 9.2 million tonnes in 2006-07 and 3.6 million 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.