India takes top sugar grower spot on biofuel rush

By David Brough

LONDON (Reuters) - India is set to overtake Brazil as the world's top sugar producer, but Brazil could soon win back the crown due to weather trends and a growing appetite for cane-derived biofuel.

The London-based International Sugar Organization (ISO) forecast in its latest monthly report on Monday that India, the world's top sugar consumer, would overtake Brazil as the world's top producer of the sweetener in 2007/08 (October/September).

Soaring sugar prices in the mid-2000s encouraged Indian farmers to plant cane and good monsoons have aided production. But future monsoons may not be favorable to the crop.

"Indian dominance is not for ever," said Sergey Gudoshnikov, a senior economist with the ISO.

"Sugar production is not an exciting business in India any longer because domestic prices collapsed."

Another analyst with a trade house said, "India's move to the top (of the production league) should only be temporary."

The sharp fall in raw sugar prices, which have shed a fifth so far this year due to a global supply glut, will lead Indian farmers to plant alternatives, such as cereals and soybeans, for the 2008/09 crop, analysts said.

The ISO predicted Indian output in 2007/08 at an all-time high of 33.15 million tones, up 8 percent year-on-year. Indian consumption runs at about 20 million tones a year.

Last month, the ISO projected Brazilian sugar production in 2007/08 (October/September) at 32.38 million tones, up less than three percent year-on-year.

India has exported 1.5 million tones of white sugar since January 2007, when a ban on overseas sales ended, the ISO said, quoting industry reports.

Analysts said India was not likely to remain the top sugar producer in 2008/09 because of the outlook for steady growth in the Brazilian sugar industry, as well as uncertainty over future monsoons and expectations of a huge buildup of stocks in India.

"In Brazil, expansion plans, initiated over the past two years, will proceed, linked to the booming domestic ethanol market," said Peter de Klerk, a senior analyst with London-based sugar merchant Czarnikow.

He added that uncertainty over how India will handle its huge sugar stockpile cast doubt over India's future ranking as the top producer. Meanwhile, Brazil will remain the world's largest exporter.

He said India would struggle to either store or export its stock which the ISO estimated could rise to 19.8 million tones by September 2008, equivalent to a year's domestic consumption.

This will result in a downturn in future production.