The inflation level in India, which is already above the tolerance limit of the Reserve Bank of India (RBI), is likely to rise further due to the increasing cost of milk and sugar.
New Delhi: The limited availability of sugar in the domestic market is expected to take its prices to new heights even as the rates have been increasing for the last three weeks.
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Food Secretary Sanjeev Chopra said that the All India Sugar Trade Association cut its sugar production estimate for the 2022-23 crop year (October-September) to 33.5 million tonnes (mt) from 34.5 mt. Mr Chopra cited the unseasonal rainfall in Maharashtra as the reason for a possible shortfall of 200,000-300,000 tonnes from an initial estimate of 38.6 mt, including diversion of sugar to produce ethanol. Sugar crops were allocated to biofuel blending as the ethanol prices soared after OPEC+ announced a surprise output cut.
In the commodities market, the raw sugar futures extended their rally to over $23.5 per pound in April, the highest since October 2016, supported by prospects of robust demand and tight global supplies. The price of raw sugar increased 16.00 per cent in the last one year and 13.27 per cent in the last one month
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Effect On Inflation
The inflation level in India, which is already above the tolerance limit of the Reserve Bank of India (RBI), is likely to rise further due to the increasing cost of milk and sugar coupled with deficient rainfall during the monsoon season because of a possible El Nino weather pattern. This could force the central bank to keep interest rates higher for longer.
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“We were aware of the lower production of sugar. The market has suddenly woken up after the early closure of mills in Maharashtra and Karnataka, creating concerns over supply tightness in the domestic market,” an agribusiness executive told Mint requesting anonymity.
As per National Federation of Cooperative Sugar Factories, 190 mills in Maharashtra and 71 in Karnataka have stopped sugarcane crushing. The mills in the two states crushed nearly 104 mt and nearly 53 mt of cane, respectively, until 31 March 2023, it said.
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This early closure of crushing operations hints that the states of Maharashtra and Karnataka will be producing less sugar. According to Mint, it is estimated that the production of sugar will drop to 10.5 mt from 13.8 mt in Maharashtra and 5.6 mt from 6.3 mt in Karnataka.
