Prices of sugar globally remain a cause of concern because the commodity, essential in nature, has remained in short supply for two consecutive seasons with the cane crop failing in the world’s two leading production centres — Brazil and India.  Thanks to India experiencing the weakest monsoon since 1972 last year and the Brazilian cane harvesting getting badly disrupted in the final months of 2009, sugar prices have scaled 30-year highs in the past 12 months. 
As India turned from an exporter of nearly 5mt (million tonnes) in 2007/08 to an importer of 2.5mt last season and now planning imports of at least 6mt of whites and raws, it is seen as the principal driver of price surges in the world market.  Import requirements of the EU region, which in compliance with WTO (World Trade Organization) anti-subsidy rules is gradually phasing out beet sugar production, are rising.  At the same time, domestic production setback is leading countries like Pakistan, Indonesia, Malaysia and Bangladesh to resort to large imports.  Sugar is a
sensitive commodity cutting across all economies and all governments will facilitate import of sugar irrespective of its
prices to avoid public wrath.
The world put up with a sugar deficit of around 11mt last year.  That is why March futures now for whites on LIFFE
(London International Financial Futures Exchange) are moving astronomically between $730 and $748 a tonne and that for raws on ICE are range bound between 27.91 cents and 28.95 cents a pound.  When trading resumed in January 2009 after the Christmas and New Year break, LIFFE March whites were $327.80 a tonne and ICE raws for identical settlement were 11.82 cents a pound. 
The 2008/09 Indian crop failure made even worse by large-scale diversion of cane to the highly inefficient gur and khandsari factories, alternative to sugar mills saw India making only 14.6mt of sugar while requirements were conservatively placed at 22.5mt.  The day then was saved by the season’s comfortable opening stocks of 10mt and imports.  But now the world knows the Indian sugar cupboard is virtually bare and it must import very large quantities of both raws and whites to fulfil domestic requirements, whatever the cost.  The same is the case with Pakistan and Indonesia.
Much troubled by raging sugar prices, Indian agriculture minister Sharad Pawar tells DCI that “whenever we decide to
import sugar, considering the volume, world sugar prices rise and when the time comes for export because of surplus, global sugar prices fall.”  This, however, will not exonerate his government for stopping exports a couple of seasons ago when sugar was fetching high prices in the world market on unfounded fears that the country was heading towards low domestic production.
Incidentally that was also the time when India made a breakthrough in the Pakistani market.  It will be recalled India
produced a record 28.33mt in 2006/07 followed by another bumper production of 26.33mt next year.
The wrong decision then to withdraw from exports also played a role in today’s crisis in India.  Under the weight of
surplus production and the export exit route sealed, the domestic market was deluged with sugar and in the process for
months together the mills had to sell the commodity at prices which did not even cover the cost of cane.  Then one thing led to another.  Almost every mill defaulted badly in settling cane bills even while the industry is required by law to clear farmers’ dues in 14 days.  At one point mill dues on cane account rose to over Rs90bn ($2bn.)
According to industry official Om Dhanuka, Indian farmers having suffered privation for no fault of theirs took revenge by shifting land to competing crops.  “Not only was land under cane down to 4.395 million hectares last season from 5.151 million hectares in 2006/07, the industry also experienced during this period the spiriting away of cane by sweeteners alternative to sugar from 9.7% to as much as 35%.  To make matters worse, we also had a particularly bad spell of weather,” says Dhanuka. 
But now high prices of sugar and also the reassertion of their rights to get remunerative cane prices, which incidentally has the backing of all Indian political parties, have led farmers to growing cane once again on a large scale.  But cane, depending on its variety, is a 12- to 15-month crop.  India will, therefore, reap the benefits of additional plantation during the 2010/11 season when sugar production could be 24mt, making imports dispensable.
In the case of Brazil, the harvesting disruptive heavy rains between September and December will, however, have a
beneficial impact on the 2010/11 (May to April) crop which is now expected to be a bumper 590mt.  A Goldman Sachs report says, “record sugar prices may incentivise harvesting of Brazilian crop as early as March instead of usual May.”  All this has led International Sugar Organization to say that the next season will see production being 1mt in
excess of demand.
What does all this mean for sugar prices in future? As the new season Brazilian sweetener hits the market, it will be difficult to find sugar bulls beyond the first half of 2010. JP Morgan agri-commodity strategist Tobin Gorey says, “in
the second half of the year, expect to see a substantial production response.”  That should tame the market in a major way.  More and more agri-commodity experts, therefore, are seeing ICE futures coming down to 17 cents a
pound in the next six months (for more information, see ‘Brazil benefits from Indiansugar shortfall’ on p4 of this issue).
By Kunal Bose