ISMA says demonetisation, price elasticity affects the sale of sugar

Urban India's health fad isn't sweet news for sugar. Softdrink companies are looking up to a scorching summer, which weathermen predict will likely set in early this season, to help beat the latest trend of sluggish volume growth. Yet, sugar mills are pencilling in a 10% decline in aggregate demand, as cities display a shift toward less sugary drinks and India's hinterland holds back purchases of what is considered a luxury.

A beverage industry said, "This is beginning to reflect on production cycles now, and raw material sourcing is being scaled back."

The official said, "There is a slowdown in ur ban markets where consumers have multiple options of choosing functional beverages such as flavoured water, probiotic drinks and fresh juices. Rural consumers, on the other hand, have been lowering spending on discretionary categories such as cola."

Fast moving consumer goods (FMCG) companies that buy the sweetener in bulk account for 70% of local sales of sugar. The April June quarter contributes more than 40% annual sales of the Rs.14,000 crore industry.

The assessment on lower demand comes amid an ongoing boycott of colas by traders and shopkeepers in Tamil Nadu. For its part, Pepsi Co does not foresee major volaitility in demand for the sweetener.

Vipul Prakash, Vice President, Beverages, PepsiCo India said, "We do not envisage any signifi cant change in our requirements this year and, in fact, look forward to the season."

Compared to last year's sugar off take of 24.8 million tonnes, industry grouping Indian Sugar Mills Association now expects sugar sales this season to be between 23.8 and 24 million tonnes.

ISMA president T Sarita Reddy said, "In our meeting held on Monday, all members reported that there was no demand for sugar in the market.In the south, it is due to the boycott on some cold drinks in Tamil Nadu, while in other parts of the country, there is a fall in demand in domestic as well as the FMCG segment."

According to ISMA, lower sales could be due to demonetisation, drop in sugar purchases by bulk consumers and price elasticity affecting demand.