India’s Sugar Export Likely to Recover Domestic Demand; May Have Sweet Story For Sugar Industry
Industrial demand which accounts for majority of domestic sugar consumption of nearly 60%, has been dented due to closure of hotels, restaurants and cafes for a large part of 2020.But, a fall in industry demand for sugar due to coronavirus pandemic, exports are likely to save the day for manufacturers as onshore demand is expected to shoot up and might bring a next big thing for the industry.
Source: India Infoline News | FE | 27 Aug, 2020 | 11:50 AM
Industrial demand which accounts for majority of domestic sugar consumption of nearly 60%, has been dented due to closure of hotels, restaurants and cafes for a large part of 2020.
While industrial production is getting back to pre-COVID levels, the 3 months of production shutdown is a sunk cost.
But, a fall in industry demand for sugar due to coronavirus pandemic, exports are likely to save the day for manufacturers as onshore demand is expected to shoot up and might be a next big thing for the industry.
“Sugar offtake in the current sugar season (SS 2020; October 2019-September 2020) is expected to remain more or less at last season levels despite the Covid-19 pandemic as buoyant exports make up for a visible shortfall in domestic consumption,” a CRISIL report said on Wednesday.
On the other hand, household consumption is likely to drop by 2-3% as “prolonged confinement at home has seen a surge in appetite for biscuits and bakery products,” the report said. Household consumption accounts for nearly 40% of the sugar consumption.
Exports Recovering the Domestic Loss
The shortfall of about 10-12% in domestic sugar consumption will be more than offset by a surge in demand by foreign nations as the same is likely to spurt more than 30% to nearly 5 million tonne in SS 2020.
Reasons behind Surge in Exports
Brazil Dispatches Delayed- In 2019-20, Brazil had allocated 46% of its sugarcane crop to sugar production. However, the lockdown hit Brazil hard and dented Brazil’s position as the world’s largest sugar exporter. Brazil has also suffered due to labour related delays at its largest port, Santos. This has meant that Brazil sugar despatches are taking 45 days more to reach.
Thailand Output Falls- Thailand’s sugar output hit a 9-year low this season due to drought conditions. Thailand’s sugar output this year is expected to fall by 28% to 10.5 million tons. Lower production in Thailand, which has turned its key importers namely Indonesia, Kenya, Bangladesh, Afghanistan and Iran, towards India.
Other reasons have also contributed to a hike in export demand. This includes a weakening of rupee by 3.5%, government subsidy of Rs10.4 per kg and reallocation of export quota.
Is Exports Emerging A Next Big Story for The Sugar Industry ?For the SY2020-21, India is likely to export a record 5.50 million tons of sugar. In fact, with just 2 months to go for the sugar season to end, 4.80 million tons have already moved out. This could be the best export performance for the Indian sugar industry in the last 12 years.
In the last 2 years, the government has been providing sugar subsidies to Indian sugar exporters to make up for the cost advantage that other countries enjoy. Brazil and Thailand had complained to the WTO, but there is really not much of a case in it.
Meanwhile, in the domestic market; considering upcoming festive seasons, the sale of packaged sweet products, such as chocolates and cookies is likely to go up as fear of contamination prevails for loose sweets. While chocolate sales remained stable in the first quarter of the current financial year, the same is also likely to go up in the festive sales.
Sugar production is estimated to be at 305 lakh tonnes during the sugar year ending 2021, and 272 lakh tonnes in SS 2020 ending September.
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