Surplus stock gives sugar producers a pinch of salt; exports only option

Himanshu Vatsa | The Dollar Business

With the next harvesting season of sugarcane approaching, the stockpiling of surplus sugar from the past season has become a major concern for the industry. According to sugar millers, exporting the sweetener is the only option to get rid of more than 10 million tonnes of surplus stock across the country. Even though the government in March announced export subsidy of Rs 4000 per tonnes, the industry demands additional benefits for overseas shipment. “The government announced export subsidy in March when 70% of the country’s production was over. What is the use of this subsidy when we are still not sure whether the scheme will continue or not,” Sanjeev Babar, Managing Director of Maharashtra State Cooperative Sugar Factories Federation, told The Dollar Business. Indian sugar exporters have already been facing a tough time due to sharp fall in the global sugar prices and depreciation of Brazilian currency. Suppliers from Brazil— the largest producer and exporter of sugar— are prompted to sell in the international market to gain maximum profit margin. Experts believe that since the sugarcane harvesting season is set to begin in October, Indian exporters will be forced to sell sugar at a price lower than their production cost to ward of their previous stock. Also, sugar mill owners need money to pay the cane price to farmers on time. And this will lead to further decline in the price of sugar in the international market, adding to the loss of the Indian sugar industry. “If you hold farmers’ payment, interest will be added to the amount every day. The crisis will persist unless the government takes some quick measures. The government should at least clarify its policy. If there is a policy, they (government) must say that it will go on till a certain period,” Babar said. He also said that the benefit provided by the government for the production of biofuel ethanol from cane is not enough to cover up the losses because “ethanol is only 20% of the total produce. A major portion of the income comes from sugar”. The Indian Sugar Mills Association has estimated total export of around 1 lakh tonnes during the coming season. Industry players, however, said the annual cross-border shipment is expected to cross 1 million tonnes due to forced selling. On the other hand, the domestic demand of sugar is estimated to be below 25 million tonnes this year as against 27 million tonnes recorded last year. This will also add to the existing stock of the sweetener. The current price of sugar in the domestic market is hovering around Rs 20 per kg, much lower than the average production cost of more than Rs 30 a kg.    

July 22, 2015 | 4:37 pm IST.