India looks likely to produce 26.5 million tonnes of sugar this year, half a million tonnes more than a previous forecast of a leading producers' body, exacerbating surplus supplies in the world's biggest producer of the sweetener.
Bountiful sugar output in India, also the world's No. 1 consumer, in the current 2019/20 season will leave around 6 million tonnes of surplus for the next year beginning October 2019, the Indian Sugar Mills Association (ISMA) said in a statement.
Mills are likely to produce 26.5 million tonnes of sugar in 2019/20, 1.92% lower than the November forecast of 26 million tonnes, ISMA said, thanks to higher crop yields and the robust sugar recovery from the cane crop.
Years of bumper cane harvests -- a result of a high-yielding variety introduced a few years ago -- and plentiful production have hammered domestic prices, hitting mills‘ financial health and making it hard for sugar barons to pay money owed to cane farmers, who form an influential voting bloc.
Mounting cane dues and mills' deteriorating financial condition forced the government to approve a subsidy of 10,448 rupees ($145) a tonne for exports of 6 million tonnes in the 2019/20 season.
New Delhi's decision to give subsidies for exports irked Brazil, which vies with India as the world‘s biggest sugar producer.
Brazil has taken India's subsidies for sugar exports to the World Trade Organization (WTO), saying they are not in line with WTO rules and would hurt free competition in the global market.
Australia and Guatemala have also questioned the subsidies at the WTO.
Other than giving incentives for exports, the government also created a buffer stock of 4 million tonnes of sugar in an attempt to suck the extra supply out of the domestic market and prop up local prices.
The ISMA said carryover stocks on Oct. 1, when the next 2020-21 season begins, are expected at around 10 million tonnes, down from 14.5 million tonnes in the previous year.
Indians, known for their penchant for anything sweet, are likely to consume about 26 million tonnes of sugar in 2019-20.
Factoring in the Oct. 1, 2020 inventories and local consumption, and assuming that the government would again create a buffer stocks of 4 million tonnes, India's 2020-21 sugar surplus would stand at 6 million tonnes which the country would try to sell on the world market.