Sugar export sop to be restored to ₹3,300/t

The Centre is all set to restore the incentive on raw sugar exports to ₹3,300 a tonne.

The incentive, technically supposed to defray expenditures on marketing and promotion incurred by mills, was slashed to ₹2,277 a tonne for shipments during April and May by the previous government.

There was also a move initiated under the then Food Minister KV Thomas to dispense with the incentive scheme totally after September 30, when the current 2013-14 sugar year ends. The Ministry had even prepared a draft note towards this for consideration by the Cabinet Committee on Economic Affairs, which had earlier approved the scheme on February 12.

The new Government has decided to retain the incentive in its original form, covering a total quantity of up to 40 lakh tonnes (lt) to be shipped between February 2014 and September 2015, i.e. until the end of the 2014-05 sugar year. Also the incentive is to be restored to ₹3,300 for June and July, informed sources told Business Line.

Minister parleys This follows a meeting that Food Minister Ram Vilas Paswan had with his Cabinet colleagues from Uttar Pradesh (UP) and Maharashtra last Wednesday to look into the problem of cane payments to farmers by sugar mills.

The meeting was attended among others by the Union Agriculture Minister Radha Mohan Singh, Road Transport and Highways Minister Nitin Gadkari (who is also holding charge of Rural Development following Gopinath Munde’s demise), MSME Minister Kalraj Mishra, and Women & Child Development Minister Maneka Gandhi. The Ministers of State for Agriculture and Food, Sanjeev Kumar Balyan and Raosaheb Dadarao Danve, were also present.

There was a clear consensus to create conditions to ensure full discharge of cane arrears at the earliest. This would include promoting exports given the surplus sugar stocks in the country, the sources said.

The 2013-14 sugar season opened with stocks of 92.98 lt. With likely production of 214 lt and imports of one lt, the total availability for the season would work out to 334.98 lt, as against estimated consumption of 240 lt and exports of 20 lt.

The next season will have opening stocks of 75 lt, almost equivalent to four months’ domestic consumption. Without exports, sugar prices will remain depressed, making it difficult for mills to pay off farmers, the sources noted.

Cane politics In UP, factories had, as on June 5, paid only ₹10,939.84 crore out of the ₹19,390.57 crore worth of cane procured from farmers at the State Advised Price of ₹280 a quintal for the 2013-14 season. That translates into outstanding arrears of over ₹8,450 crore.

Sugarcane farmers constitute a sizeable votebank in Maharashtra, where assembly elections are due later this year, and UP, where the Bharatiya Janata Party is seeking to build on the momentum from its best-ever performance in the recent Lok Sabha polls.

There are obvious political stakes in being seen to be doing things for cane farmers. The Ministers even favoured raising the import duty on sugar (both white and raws) from the existing 15 per cent to 40 per cent. But that is a call that the Finance Minister (Arun Jaitley) will have to take, the sources said.

The economics of export

Raw sugar of Brazilian origin is currently quoting at around 17 cents a pound or $ 375 a tonne, free on board (fob).

Indian raw sugar fetches a premium over this, both on account of higher polarity (an additional 4.05 per cent of fob value or $15/tonne) and freight advantage of being closer to the main West Asian markets (about $20/tonne).

The fob value of Indian raw sugar at Mumbai, thus, works out to about $410 a tonne or $415 after adding 1.5 per cent duty drawback benefit.

At current exchange rates, that would be roughly ₹24,500 a tonne. The ex-mill realisation on this in Maharashtra after deducting for transport, port handling and other charges (about ₹2,200) comes to ₹22,300 a tonne. “With the export incentive of ₹3,300, the ex-mill realisation would go up to ₹25,600 a tonne. Even with this, you cannot cover production costs that would be upwards of ₹26,000 a tonne even with the 11.5 per cent sugar recovery levels in Maharashtra,” claimed a miller.

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