Higher price prospects augurs for Indian sugar exports. F.E., Dec. 2006


Indian sugar industry need not lament for missing the opportunity for exports due to the earlier ban imposed by the government at a time when the global prices were ruling high at $450 a tonne. The global prices, which has recently come down to around $320 a tonne are likely to appreciate further showering a boon on Indian exporters.

A study done by Oxfam GB in India shows that the global sugar prices are likely to show an upward trend mainly because of the gradual phasing out of Europen Union's subsidy on sugar resulting in consequent lower production in the coming years.

The worldwide move to boost ethanol as an alternative fuel will continue the lure of sugar and soar its prices in the commodities markets. Apart from these there are other factors like decline in sugar output by 15% in 2005-06 in the major producing country, Thailand due to drought. Though other major producers increased their sugar output, Indian exporters can fill the gap created by Thailand Indian sugar industry are looking upwards with the gradual phasing out of European subsidy. Even in the most neglected state Bihar - the sugar mills began reaping more profits, the study said.

The major destinations for Indian sugar exports are Pakistan, Bangladesh, Sri Lanka, Indonesia, Malaysia and West Asia. Pakistan has increased its sugar output in 2005-06 to 3.2 million tonne and may not import much. In this context, The Oxfam GB study suggests that Indian exporters should, for the time being, concentrate on markets in south and South-East Asia and West Asia. The study also points out that Indian sugar has lot of potential in the global market as it is considered better than Brazilian sugar. The Oxfam GB study says that with recent changes in the government policies, India may witness production of ethanol directly from sugarcane as in Brazil. In Brazil ethanol production is more profitable than the present prodcution of ethanol from molasses in India.

In response to the rising domestic prices, the Indian government had imposed a ban on sugar exports on July 4, 2006. Only on December 18, this year, the government partially lifted the ban to allow mills, having earlier export commitments, to export. The Oxfam GB study estimates the huge damage done to the developing world on account of the subsidies and support given by the European Union. EU used to spend 3.30 euros in subsidies to export 1 euro worth of sugar and domestic prices were maintained at levels 3 times higher than the global prices. The biggest beneficiaries were the large farmers and sugar companies and the main losers were the farmers in the developing world and the European taxpayers and consumers.

Due to such a protectionist regime EU was able to produce about 5 million tonne exportable surplus sugar and dump in the developing world depressing the prices. The WTO dispute settlement body in September 2004 declared EU protectionism illegal and EU decided to gradually phase out its support.