The Hindu Business Line : Sugar mills exploring options for tackling surplus

Chennai June 5 A special purpose vehicle, an independent company specially promoted for market intervention to regulate sugar prices, is the way to ensure sugar prices at levels that would keep the farmers, sugar mills and consumers happy, according to the Indian Sugar Mills Association.

The sugar industry is examining a range of options as a mounting glut in sugar production and dropping prices threatens its viability and sugarcane payment to farmers.

Among the options being examined are a market intervention mechanism and raw sugar exports, apart from increasing the buffer stock. The Centre has agreed to create a buffer stock of 20 lakh tonnes of sugar and has announced that it would create an additional 30-lakh tonnes. A move that ISMA believes is a lifesaver.

India is looking at a sugar production of about 270 lakh tonnes against an annual consumption of about 195 lakh tonnes in the current season. A portion of the surplus 75 lakh tonnes needs to be removed from the system to prevent a further drop in prices. This surplus is in addition to the opening stock of 40 lakh tonnes. Adding to the concern is the forecast of the next season being as plentiful.

Over the last one year, the industry has seen sugar prices swing from peak levels of about Rs 20 a kg to a low of about Rs 12.50 currently, where sugar mills are not recovering even the cost of sugarcane. This puts at risk the payments to farmers for the cane apart from the operations of the sugar mills, say millers.

Market intervention

According to Mr P. Rama Babu, President, ISMA, the industry hopes to convince the Centre to consider a "strategic stock concept" to regulate sugar prices. This would have to be through a non-profit company purely driven by economics. Such an independent agency would buy the sugar when there is a surplus that drives down prices or release sugar into the market when the prices increase. The company handling this operation would be free to import or export sugar when needed, he said. It could import raw sugar into the market for processing by the sugar mills.

This was a superior option as compared to a ban on imports or exports, which adversely affects the credibility of India in the international markets.

Raw sugar exports

Another option to cut the surplus would be to export raw sugar, according to Mr Rama Babu. With the export subsidy of Rs 1,350 a tonne available to raw sugar, sugar mills are looking at producing raw sugar for exports.

Over the next year the sugar industry is going to see a significant jump in export of raw sugar. But this too would be only a distress sale as raw sugar prices move in tandem with white sugar prices. However, the industry, which is desperate to move surplus sugar, will go for it. There is little market for plantation white sugar, the commodity normally exported from India, he said.

Ethanol Programme

The industry is pushing for permission to use B-heavy molasses to make ethanol for the ethanol-blended petrol programme. This grade of molasses is an intermediate stage of molasses in sugar production and has high sugar content. So more ethanol can be produced and less sugar. So the industry hopes to bring down sugar production by about 8 lakh tonnes while generating ethanol for the fuel programme. ISMA has committed to sell ethanol at Rs 21.50 a litre for the first year if the Government hikes the blending to 10 per cent, Mr Rama Babu said.