India's sugar production is likely to be lower than government estimates this season, raising the possibility of higher imports by the world's biggest consumer of the sweetener, the chief executive of leading Indian refiner Shree Renuka Sugars told Reuters.
The government has forecast production of 22.5 million tonnes for the 2016/17 season and lower output could force New Delhi to cut or axe the 40 percent import tax to facilitate cheaper purchases from the likes of Brazil, Thailand and Australia.
Increased overseas purchases could potentially jack up benchmark prices in New York, where eyes are focused on India, the world's second-biggest sugar producer.
"Our estimate is that production will remain close to 20 million tonnes in the 2016/17 season, largely because of Maharashtra, Karnataka and Tamil Nadu," said Renuka's Narendra M Murkumbi, referring to India's leading sugar-producing states.
The Indian Sugar Mills Association on Wednesday cut its output forecast to 21.3 million tonnes, the lowest in seven years and down 9 percent from its previous estimate.
After a meeting of representatives from India's top sugar cane producing states, India's Food Ministry on Tuesday kept its estimate at 22.5 million tonnes.
Though the government's forecast of 22.5 million tonnes remains unchanged for now, the Food Ministry will reassess the situation in two weeks, government sources said on Wednesday.
Even a small drop in output could be a tipping point for India's import requirements.
"It looks like that imports will be required," Murkumbi said.
Indians consume about 25 million tonnes of sugar a year and on October 1, when the 2016/17 sugar season began, stocks at mills totalled 7.75 million tonnes. Government ministers have ruled out lowering the import tax for now, but Murkumbi believes that India will have to scrap the duty entirely.
"If prices are to be maintained at the current level, the import duty needs to be brought down to zero," Murkumbi said. Sugar prices in the local market have risen by more than 10 percent in a month on an expected drop in production after back-to-back droughts ravaged the cane crop in Maharashtra. Since sugar is a politically sensitive commodity in India, the government often resorts to measures such as scrapping the import tax and banning futures trading on commodity exchanges.