Sugar production is expected to rise by 40% to 18.17 million tonne in 2005-06 compared to 12.1 million tonne in 2004-05 even as e xports during the previous four years averaged 4.5 million tonne. Not only that India today accounts for more than 100% of the overall increase in global sugar production in the current year 2005-06. It is further expected to rise to about 4.2 million tonne as compared to the increase in global production by 3.3 million tonne. World sugar production for the 2005-06 year is forecast at 144.2 million tonne, raw value, up 3.34 million tonne from the revised 2004-05 estimate. Consumption is forecast at 142.8 million tonne, up 1.7 million tonne from a year earlier. Exports are forecast at 47.7 million tonne, up 1.4 tonne; and ending stocks are forecast at 31.5 million tonne, down 3.6 million tonne. According to Global Agriculture Information Network (GAIN), forecast increases in 2005-06 world production and trade are mainly due to higher production in India, up 4.2 million tonne; Brazil, up 5 million tonne; and China, up 7 million tonne. The world export forecast for 2005-06 is revised upward by 3% despite reduced shipments from Thailand of 9,00,000 tonne. Reduced Thai shipments are offset by increased shipments from the EU of 1.7 million tonne, and Brazil of 2,00,000 tonne. Thai exports for 2005/06 are forecast at 2.7 million tonne. Exports during the previous four years averaged 4.5 million tonne. Revisions of the 2004-05 Production, Supply, and Distribution (PS&D) may estimates place world beginning stocks at 38.8 million tonne, down 2,00,000 tonne; world production at 140.8 million tonne, down 1.3 million tonne; world exports at 46.3 million tonne, up 3,00,000 tonne; world consumption at 141.1 million tonne, down 4,00,000 tonne; and ending stocks at 35.1 million tonne, down 6,00,000 tonne. Principal country changes in 2005-06 PS&D forecast world production from the May estimate are: Brazil, down 8,00,000 tonne; the EU up 8,00,000 tonne; and the United States down 6,00,000 tonne. Since the May forecast last year, EU exports are forecast to increase by 1.8 million tonne; Brazilian exports are revised downward by 5,50,000 tonne; Thai exports are reduced by 2,00,000 tonne; Pakistan's shipments are down 2,15,000 tonne; and India's exports are up 1,80,000 tonne. But sugar prices are expected to show a rising trend as consumption is likely to outstrip production in '05-06 sugar year, an economic think tank has said. “We expect the rising trend in sugar prices to continue,” Centre for Monitoring Indian Economy (CMIE) said in its latest report.

Increasing global prices and eagerness of sugar mills to fulfill their re-export obligation are also expected to add the upward pressure on domestic prices, it said.

In Budget proposals, the government merged basic excise duty and additional excise duty on sugar together. Although, the move does not translate into a hike in the effective levy on sugar, CMIE said, “It opens a door for the levy of value added tax (VAT)”. In case if VAT is levied on sugar, it would not have any adverse impact on profitability of sugar mills as the burden would be passed on to the consumer.

This implies that the sugar prices would further rise in such a scenario, it said. CMIE expects sugar mills to do well in the current sugar year '05-06 (October-September).

Unlike last two years, this time growth is likely to come from volume expansion instead of hike in sugar realisation. Sugar companies, which expanded capacities recently, are likely to benefit the most.