The article starts with the economic crisis of raw sugar prices taking a plunge to 9.75 cents/pound for May delivery in New York, a historic low previously witnessed last June, 2008. The oil prices have also followed suit, with West Texas Intermediate grade crude’s price dropping to an alarming minus $40.32/ barrel in the interlay trade in New York (USA).
Effects of COVID-19 and Oil Prices on Sugar Production
In the wake of the global pandemic, the economic activities across the globe have drastically declined. Consequently, the demand for many commodities including sugar has experienced a significant downturn.
This crisis has been worsened by the recent fall in oil prices. Typically, when oil prices are high, mills, particularly in Brazil, convert cane into ethanol. This product is then blended with petrol. However, the dramatic drop in oil prices has made it economically unviable to continue producing ethanol from cane. Therefore, the mills have shifted their focus to sugar production, thereby increasing the supply in a market where the demand has plummeted.
Challenges Faced by Indian Sugar Producers
The combination of reduced global demand for sugar and low oil prices present a substantial challenge for Indian farmers and sugar industries. Higher Brazilian output and lower consumption rates have led to an oversupply situation. This issue is augmented by the already high dues owed by the Indian sugar industry to farmers.
Additionally, exports have decreased markedly and domestic uptake by institutional consumers has been significantly hampered. These factors have compounded the inability of the mills to make timely payments to cane producers. The imposed lockdown has also led to a reduced offtake of alcohol which was traditionally used for blending with petrol or consumed as potable liquor.
Opportunities Brought About By The Crisis
Despite the challenges, there are potential opportunities for India in this crisis. The increased import requirements of Indonesia present a promising market for Indian sugar. Indonesian refiners are forecasted to import 3.3 mt of raw sugar this year, up from 2.6 mt in 2019 due to the unavailability of alternatives. Indonesia typically imports from Thailand, which is currently experiencing a severe drought that may significantly impact its production.
To further boost sugar trade, Indonesia has lowered the duty on Indian raw sugar from 15% to 5% in March.
Sugarcane Production in India
Sugarcane cultivation is normally favoured by a hot and humid climate with temperatures ranging between 21-27°C. Rainfall should be around 75-100 cm with soil types being deep rich loamy soil. This crop can also thrive in soils ranging from sandy loam to clay loam provided they have good drainage.
The southern states of India, due to their favourable climatic conditions, yield higher sugarcane outputs compared to the northern states. The leading sugarcane producing states are Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, and Bihar.
Overall, India trails only Brazil in sugarcane production. It is a labour-intensive process, providing a significant segment of manual labour employment. Its products include sugar, gur (jaggery), khandsari and molasses.
Government Support For Sugarcane Production
Several government initiatives such as the Scheme for Extending Financial Assistance to Sugar Undertakings (SEFASU) and National Policy on Biofuels aim at supporting sugarcane production and bolstering the sugar industry to maintain a balance between demand and supply while ensuring the sustainability of sugarcane producers.
Last Modified: February 7, 2024