The Hindu Business Line : How about a ‘strategic sugar reserve’?

Chennai, Aug. 11Sugar prices will continue to remain low and margins under pressure for the industry in the next season as well unless inventories can be released, says Mr Arvind Mahajan, Executive Director (Advisory Services), KPMG Advisory Services.

Speaking to Business Line on the current crisis facing the sugar industry, he said that an analysis of the performance of sugar companies over the last two quarters shows that low sugar prices due to glut in the domestic market and continued rise in sugarcane prices (mandated by the Government) have hit the margins.

“In some cases, the current sugar price does not cover even the variable price of sugarcane.”

According to him, sugar prices have reached a low both in domestic and international markets due to over-supply, which has resulted in build-up of inventories.

To facilitate inventory reduction, he suggested that the Government offer WTO-compliant incentives to facilitate exports, as exports are not competitive at the current rates.

“Besides, the Government can also create a strategic sugar reserve that removes significant excess inventory from the market. It should also allow direct conversion of sugarcane juice to ethanol for blending.”

In addition, Mr Mahajan said integrated sugar companies should reduce production of sugar and change their product mix in favour of co-generation (from bagasse) and ethanol (from molasses) to improve their profitability.