Continued over production of sugar cane in India due to massive government subsidies has contributed to a global oversupply of sugar and will continue to be a key supply driver, traders and analysts said Feb. 25 at the International Sweetener Colloquium.
Subsidies in India totaling more than an estimated $8 billion have incentivized cane growers to produce well beyond domestic demand, said Ben Fessler, market analyst, international trade and development, at C. Czarnikow Sugar, Inc.
India’s sugar industry involves more than 50 million (mostly cane growers), which form a large voting bloc that the government does not want to upset, especially with elections coming in May.
India’s large stocks built up when sugar production shot from 20 million tonnes in 2017-18 (when carryover stocks were adequate to meet demand) to an expected 34 million tonnes forecast for the current year, Mr. Fessler said. He forecast 2019-20 production at around 30 million tonnes, depending on “weather and politics,” which still exceeds estimated annual sugar consumption of around 26 million tonnes. India’s sugar stocks at the start of 2018-29 (Oct. 1, 2018) were estimated at around 10 million tonnes.
“India needs to export sugar,” Mr. Fessler said, noting the government’s expectation that the industry export 5 million tonnes of sugar in 2018-19 has been unsuccessful despite numerous export incentives, because government-mandated domestic prices have been raised, which discourages exports. He said India was a high-cost producer, and with current low world prices, “there is no way they can export without a loss.”
Robert Huff, Miami regional manager for Alvean, told Colloquium participants that without the various subsidies, India’s sugar production likely would be closer to the 26-million-tonne consumption level. He estimated India’s 2018-19 sugar outturn at about 31.5 million tonnes, depending on weather, noting that early-season production has been running ahead of last year. He said growers will plant cane even if they are not paid immediately since prices paid to growers are government mandated. Lower cane production in India would be the result of weather, “not the decision to produce less,” he said.
Mr. Huff noted that global sugar stocks were record high this year and “highly concentrated in India.” He said there may be a global sugar deficit (consumption exceeding production) in 2019-20, but carryover stocks still may be high.
Mr. Fessler said a global sugar surplus near 18 million tonnes in 2017-18 is expected to decrease to around 5 million tonnes this year, with a 6-million-tonne deficit expected in 2019-20. But high global stocks will limit price gains, he said, citing a global stocks-to-use ratio near 30%. A ratio between 20% and 25% would be more likely to support prices, he said.
Production in Thailand has come down from a record high 14.5 million tonnes in 2017-18, Mr. Fessler said, estimating 2018-19 production at 14 million tonnes and forecasting outturn in 2019-20 at 12 million tonnes, with a weather risk possibly lowering production to 10 million tonnes. Thailand is a major sugar exporter.
Sugar production in Brazil, the world’s largest sugar cane grower, declined in 2018-19 (which ends March 31) due to record-high ethanol production, said Leticia Phillips, North American representative of Unica, Brazil’s sugar and ethanol industry association. She noted that Brazil’s share of the global sugar export market has declined from near 40% a couple of years ago as high ethanol prices and use in Brazil have pulled cane away from sugar.
Mr. Fessler said he expected the sugar/ethanol mix of Brazil’s cane crush to be 38%/62% in 2019-20, compared with 35%/65% in 2018-19 as sugar prices currently are near profitability in Brazil.
