Demand supply and prices
Sugar demand
The demand for sugar is mainly dependent on the following:
·
Population growth
·
Income levels
·
Consumer preference for sugar vis-à-vis alternate
sweeteners.
Being a basic commodity, demand for sugar increases
with increase in population
The per capita income is another important factor that influences the
demand for sugar. An increase in the per capita income increases the demand for
sugar from user industries such as soft drinks, food products and
confectioneries. This translates into higher indirect consumption of sugar and,
hence higher total demand. The shift in consumer preference for sugar vis-à-vis
alternative sweeteners (such as artificial sweeteners) is also tied to the
income levels, and the prices and availability of such alternatives to sugar.
Over the past 10 years (2007-08 over 1997-98), sugar consumption has
increased at a CAGR of 3.7 per cent driven by 1.7 per cent CAGR growth in
population and a 1.9 per cent growth in population.
In the past 5 years (2007-08 over 2002-03), sugar consumption has
increased at a CAGR of 3.9 per cent driven by a 1.7 per cent CAGR growth in
population and a 2.2 per cent CAGR growth in per capita consumption. The faster
per capita consumption growth in the past 5 years has been on account of the
strong growth of end use sectors.
Table 1: Sugar - Trend in domestic consumption
|
|
Domestic consumption
|
Per capita consumption
|
|
|
(million tonnes)
|
(kgs)
|
|
1996-97
|
13.8
|
14.5
|
|
1997-98
|
14.7
|
15.2
|
|
1998-99
|
15.2
|
15.4
|
|
1999-00
|
16.1
|
16.0
|
|
2000-01
|
16.2
|
15.9
|
|
2001-02
|
16.8
|
16.1
|
|
2002-03
|
17.4
|
16.5
|
|
2003-04
|
17.7
|
16.5
|
|
2004-05
|
18.5
|
16.9
|
|
2005-06
|
19.3
|
17.4
|
|
2006-07
|
20.2
|
17.9
|
|
2007-08 E
|
21.1
|
18.4
|
|
E: Estimate
|
|
|
|
Source: CRISIL Research
|
|
|
Supply
The supply of sugar in the market depends on factors, which can be
classified as the following:
·
Climatic factors
·
Technical factors
·
Political factors
Climatic factors
Sugar is manufactured from sugarcane, a crop grown in tropical regions, requiring
abundant rainfall (between 700 millimetres to 1,200 millimetres). In the
absence of a strong and extensive irrigation and canal network, the crop is
heavily dependent on the monsoons. The sucrose content of sugarcane depends
mostly on the climatic conditions, the soil quality and the agronomic practices
being followed. Besides this, sugarcane farmers also have to tackle the problem
of pest and insect attacks.
Technical factors
Sugarcane production
Sugar production, in the country, depends on the area under sugarcane
cultivation and sugarcane yield. The area under cane cultivation is determined
by the attractiveness of sugarcane crop vis-à-vis other crops and promptness
with which mills make payments with farmers (delayed and unremunerative payments
lead to a reduction in the sugarcane acreage and vice-versa). The sugarcane
yield depends on climatic conditions and agronomic practices. For example,
repeatedly going in for a ratoon crop (ratoon refers to the crop grown from the
cut cane of the first crop) would lead to a decline in yields.
Typically, sugarcane and sugar production in India
Sugarcane drawal rate
The sugarcane drawal rate (the proportion of sugarcane that a mill
crushes in relation to the total cane grown in the area from where it procures
cane) depends on sugarcane production and sugar prices vis-à-vis prices of
substitutes such as gur and khandseri.
Sugar prices vis-à-vis those of alternate sweeteners determine the
paying capability of sugar producers and their promptness in making payments
vis-à-vis those of alternate sweetener manufacturers.
Gur and khandsari manufacturers shut down operations if prices fall
below viable levels, resulting in increased cane supplies to sugar
manufacturers and an increase in the utilisation rate for sugar production.
Sugarcane utilisation rates for sugar production have been increasing,
due to the increased consumer preference for sugar over traditional sweeteners
such as gur and khandsari.
Duration of the season
The duration of the sugar season determines the quantity of sugarcane
crushed by the producers. The longer the duration, the higher would be the
output. In a typical high sugarcane crop production year, the duration of the
season is longer, as the sugar producers crush the excess sugarcane not
purchased by alternate sweetener manufacturers.
Recovery rate
The sugar recovery rate depends on the sucrose content of sugarcane and
the efficiency of crushing operations (for instance, sugar recovery is best if
the sugarcane is crushed within 12 hours of harvest).
In general, the duration of sugarcane crushing operations is around
150-180 days, from November to April. In a year of surplus sugarcane
production, sugarcane crushing continues beyond April and extends up to
June/July, when sugar recovery declines and molasses formation increases
significantly. Sugar recovery is also low and molasses formation high whenever
a sugar factory commences production in October, as the sugarcane is not
mature.
Political factors
The sugar supply in the market also depends on various government
controls on the distribution of sugar. The government controls the sale of
sugar in the open market through its regulated releases mechanism.
In addition to the above factors, the import and export of sugar
determine the final supply in the market.
Prices
Sugar prices depend on the demand-supply situation during the year. The
movement in sugar prices is determined by the following:
·
Net deficit/surplus in sugar (production plus imports
less domestic consumption less exports), explained by the changes in the sugar
stocks during the season
·
Stock-to-use ratio (season-end inventory as a
percentage of domestic consumption plus exports).
In the short term, the free sugar releases announced by the government
and market expectation and sentiments determine price movements in the sugar
markets.
