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1. Overview of indian sugar market

• India is the world's top consumer of sugar and the biggest producer behind Brazil.
  
• Sugar, a politically sensitive commodity, is heavily regulated by the government.
  
• The government sets the price mills must pay farmers for cane. It also buys 10-20 percent of mills' output below market rates for subsidised sale to the poor and fixes the quantity each mill can sell in the open market.
  
• The governments of major producing states try to woo cane farmers, a sizeable chunk of their voters, by forcing mills to pay more than the floor price fixed by the federal government.
  
• India's sugar sector suffers from sharp cyclical swings. Lower output and higher prices trigger a rush to plant cane for the next season, leading to a glut every third year, forcing farmers to swith to other crops.
  

2. Current Scenario (Mar 2010)

• Sugar production for 2010 is more (17 mill tone) compared to estimated (14-15) due to higher sugarcane production.
  
• No plan from govt to impose import duty on sugar. Sugar from brasil can come in easily now.
  
• Global prices have gone down from $800 to $500.
  
• Brasil cane is more diverted to ethanol.
  
• Most mills have backup of cane (80%) bought at high prices. Realizations have droped from Rs.37 per kg  to 32 per kg.
  
• Sugar production could increase in year starting Oct.2010.
  
  

Considering the above and looking long term, prospects of sugar mills making profit seems small. First they have to tackle the fact that cane have been brought at high prices and sugar produced out of it is going to be sold at lower than expected prices. Further, the cane production is going to rise further considering that more land has been devoted to cane cultivation after sugar cane prices rose. There will be an increase in production and that could further take the sugar prices down decreasing profit margin of sugar companies during early 2011.
There would not be any incentives from govt either in the form of import duties on increasing sugar prices as govt. is keen to tackle inflation and associated-criticism.]]> Mon, 22 Mar 2010 07:58:31 superman