Sugar industry needs more than export subsidy for turnaround

The sugar industry is today in crisis with cane dues owed by mills to farmers crossing ₹21,000 crore, with depressed prices and declining exports.

Surplus supply in the market along with lower overseas prices led to a sharp fall in domestic sugar prices; and margins of sugar companies are under strain due to weak realisation on sugar sales, making it harder for the sugar mills to make payments.

Raw sugar sops In order to provide a helping hand for the sugar industry, the government, in February 2015, passed the long-awaited proposal of export subsidy on raw sugar for the current production season.

According to the Cabinet Committee on Economic Affairs (CCEA), sugar mills may export 14 lakh tonnes of raw sugar and receive a benefit of a subsidy of ₹4,000 per tonne for this season 2014-15 i.e. October 1, 2014 to September 30, 2015. The government also raised import duty on sugar to 40 per cent from 25 per cent and proposed to build a buffer stock to take out some sugar from the available surplus.

Depressed prices These steps were taken mainly to help mills to clear the mountain of dues to sugarcane growers.

Despite the subsidy announcement by government to encourage raw sugar exports, mills had to struggle to increase shipments as global prices remain weak with cheaper surplus supplies from world’s largest producer Brazil.

Depressed global sugar prices make exports of sugar unviable. So far, mills have exported only 4.6 lakh tonnes of sugar till the first week of May 2015.

Another 2-3 lakh tonnes of sugar may get exported in the rest of the season.

Recently, India’s largest sugar producing state Maharashtra has also announced subsidy of ₹1,000/tonne for raw sugar exports produced in the 2014/15 marketing year with an intension to cut down the stocks.

Subsidy will be applicable for exports of 800,000 tonnes raw sugar.

Rising production ISMA data says that India’s sugar production up to May 15 stood at an eight-year high of 27.848 million tonnes. Thus, there is an increase of 16 per cent during the current season as compared to 24.003 million tonnes produced in the same period last year.

It is estimated that India will produce around 28 million tonnes of sugar in the current season against the demand of 24.5 million tonnes.

According to ISMA, sugar stocks at the end of season (in September) will touch 10.30 million tonnes, the highest in the last six sugar seasons.

However, all these actions taken by government failed to support the sweetener’s prices, because of surplus production, dull exports and weak overseas prices.

In order to help the industry, the government should buy sufficient sugar from the market to build up the buffer stock and also go for some active measures to help the industry. Moreover, the government should act quickly.

The writer is Research Analyst, Geofin Comtrade Ltd. Views are personal.

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