Where is the sugar sector headed

The continuous fall in sugar prices has hit the millers and cane growers hard, giving rise to animated political discussions over the issue. Growers are looking to the Government for help.

The sugar industry is facing a tough time as mounting arrears still seem to be aggravating with lower prices and dim export prospects. Surplus supply along with weakness in overseas market resulted in a sharp fall in domestic sugar prices. Margins of most sugar companies have come under strain, thus making it harder for the mills to make both ends meet.

In order to help the industry, the government has been taking steps from time to time to bring things under control. Backing the industry to produce and export raw sugar was one of the main proposals. In February, the Cabinet Committee on Economic Affairs permitted a subsidy on the export of raw sugar for shipments of up to four million tonnes of raw sugar. The subsidy was fixed at ₹3,300 a tonne during February-March. The subsidy was calculated on the basis of the exchange rate at that particular time and it was decided that the rate will be reviewed every two months. In April-May, it was cut to ₹2,277 and then increased to ₹3,300 during June and July. This move of raising the raw sugar export subsidy was mainly due to depreciation in the rupee. Raw sugar export subsidy for August-September was raised to ₹3,371. The scheme came into force amidst pressure for export as the rupee plunged against the dollar and mills were at their wits end due to a mismatch between selling price and procurement cost. Under the export incentive scheme, seven lakh tonnes of raw sugar were exported during 2013-14 marketing year (October- September). The industry is now waiting for clarity from the Government over continuation of export incentives for the current marketing year. Delay in government’s decision has kept exporters away from signing any deals abroad, thus keeping prices on a leash.

Currently, the government has increased the ethanol procurement prices by ₹1.50/litre to ₹48.50-49.50. This move will help the sugar mills to get better realisation with higher prices. According to the latest data from Indian Sugar Mills Association (ISMA), sugar production up to November 30 was 17.81 lakh tonnes compared with 11.4 lakh tonnes produced in the same period a year ago. The association has estimated output at 250-255 lakh tonnes for this season, higher than 244 lakh tonnes of sugar produced last season. Domestic consumption is expected to be around 230-240 lakh tonnes this season.

Around 297 sugar mills had started crushing operations compared with 262 which were operating during the same time a year ago. This shows that mills have started crushing activity in full swing and sugar production is up 56 per cent compared with the corresponding period a year ago. This has added to the worries of the sugar market, which is over supplied. Moreover, a sharp fall in global sugar prices, mainly due to lower crude oil prices which made cane-derived ethanol bio fuel less competitive, is also exerting pressure on domestic sugar prices.

Mills will start flooding the market with new season sugar. In order to support the industry, the government must come out with a solution as early as possible. Further delay in announcement will hurt the already bleeding sugar industry especially farmers and millers.

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

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