Prices, lifestyle to hit Indian sugar demand this year

The Indian consumer has a famously sweet tooth, but that may not stop demand in the world's top sugar user flattening this year even as global prices plummet. With the affluent worrying about diabetes and heart disease and the poor seeing their food budgets decimated by double-digit inflation, a five-year period of 3-5 percent annual increases in sugar demand may be coming to an end.
And the likely renewal of import duties will mean Indian consumers won't see all the benefit of a one-third fall in global white sugar prices from their peak at the start of the year. "Given the dominant role India has in the global market, these developments will cast a shadow on prices," said Mukesh Kuvadia, secretary general of the Bombay Sugar Merchants Association.
Kuvadia said that with the latest food inflation figures showing a 16.35 percent rise in the year to March 20, sugar remains out of reach to more than 300 million people who earn less than $1.25 a day. "Poor people have been left with no choice but to consume less and less sugar."
New York raw sugar futures hit a peak on February 1 of 30.40 cents a lb, a 29-year high. But as top producer Brazil brought supplies to the market and India upgraded an output forecast in the past month, raw sugar futures have tumbled and closed at $16.59 cents a lb on Wednesday.
Indian plain white sugar bought by consumers gained more than 50 percent to 29 rupees a kilogramme (kg) from 19 rupees a kg in 2009. Indian prices are up 50 percent this year. In the bulk spot market, prices have fallen around a quarter since a record high of 3,972.3 rupees on January 7 on an upward revision in output estimate and government restrictions on buyers and sellers.
Indian small retailers to national chains like Haldiram's concoct confections like laddoos - sugar water, aromatic spices and pinches of rice and baking powder all held together by clarified butter called ghee. But India's growing middle-class, estimated at anywhere from 50 to 250 million, is increasingly shunning such rich fare as well as biscuits, soft drinks and chocolate bars made by large companies like Britannia Industries Ltd and Hindustan Lever Ltd on health concerns.
India, a nation of one-billion-plus people, has been labelled the diabetes capital of the world and the disease, linked to genetic disposition, can be aggravated by a diet rich in sugar and fats. The country is forecast to have nearly 70 million diabetes cases by 2025 from nearly 42 million now, most of which are Type 2, which can be controlled through diet, unlike Type 1 which requires insulin, according to the World Health Organisation (WHO).
India also has one of the highest prevalence of heart disease, also according to the WHO, which estimates 100 million people will be affected by heart problems by 2010. The twin health threats are increasingly causing a shift in eating habits to less sugary and oily foods, a nutritionist said.
"Diabetes and heart ailments are essentially lifestyle diseases and in response people are cutting calories and switching from sugar to diet foods and drinks made with alternative sweeteners," said Saurabh Mukerjee, managing director of nutrition consultancy Health Total in Mumbai.
"Indian demand will be flat this year. There has been an extraordinary period of high prices," Kona Haque, commodities strategist at Macquarie Bank, said by phone from London. Haque labelled bulk consumers and small sweets makers as the most "vulnerable" to recent price rises, the effects of which linger even though global and domestic sugar prices have tumbled from peaks earlier this year.
India needed more than five million tonnes of sugar imports to meet demand of 23 million tonnes last year as the worst monsoon rains in 37 years lowered cane output and helped fuel a rally in global sugar prices. A decade ago, India consumed 16.6 million tonnes of sugar and was a net exporter.
Indian sugar imports will be around two to three million tonnes this year, slightly lower than expected after officials raised forecasts for the current crop to as much as 17 million tonnes which has also hit global prices. Sweet makers account for the clear majority of sugar demand, but they have been cutting back sugar content in processed and hand-made sweets as margins get squeezed and demand falls.
Small confectionery shops are not the only ones to have reduced purchases, said Sunil Kakria, managing director of Mawana Sugar, a leading producer. US soft drinks and snacks maker PepsiCo Inc, second to US-based CocaCola in soft drink sales in India, has sought government permission to use alternative sweeteners for beverages to cushion the blow of high domestic sugar prices, a PepsiCo India spokesman told Reuters.
Himanshu Manglik, a spokesman for the listed Indian arm of Nestle, also noted sugar can quickly hit margins. "Increasing raw material costs are a serious concern. Even for Nestle MUNCH, which is the leader in the chocolate wafer segment and available at 2, 5 and 10 rupees (4 to 22 US cents), consumers do not like a change from a convenient price point," Manglik said.
Supply relief is expected - industry body the National Federation of Co-operative Sugar Factories Ltd on Wednesday raised its 2009/10 (October-September) output forecast to 18.0-18.5 million tonnes, 7-10 percent higher than a previous industry forecast of 16.8 million tonnes. But whether demand will return to an upward trend is less clear. "Given India's world famous sweet tooth, I know it is a little hard to believe that demand will stabilise. But being a sugar manufacturer, I can vouch for it," Vivek Saraogi, president of ISMA, said.