Leaving a sour taste

With carryforward stock of over 10 million tonne, the sugar industry is in dire need of export subsidy 

Published 3 years ago on Nov 20, 2020 3 minutes Read

Picture a streetside vendor preparing sugarcane juice. He places the stems in the rotating crushers of the juicer and keeps spinning the bar, extracting all the liquid, till the stalks resemble dry grass. This is oddly similar to what the Indian sugar industry is experiencing right now. The sugarcane farmers and mill owners are being passed through crushers of Centre’s indecisiveness on export policy and are staring at unprecedented losses that will drain their coffers.

According to Indian Sugar Mills Association (ISMA), the country started the new sugar season (October 2020-September 2021) with carryforward stock of 10.64 million tonne (MT). In addition, India's sugar production (after diversion of cane juice and B-molasses to ethanol) is estimated to increase 13% to 31 MT in the 2020-21 season, according to the industry body. With domestic consumption standing at 26 MT, industry experts are of the view that a surplus of 15 MT coupled with lesser demand as hotels, restaurants and cafes remain shut, could lead to a collapse in the domestic market with sugar being sold at throwaway prices across the country.

To avoid this, producers are clamouring for an export subsidy. For the 2019-20 season, export subsidy of Rs.10.45 per kilogram helped India export a record 5.7 MT of sugar. That subsidy was announced in August 2019, two months before the sugar season started. This year, it has been two months into the new season and the government maintains that it is not considering providing any subsidy on sugar exports this year as international prices are stable.

The current price in the international market ranges from 14.5-15 cents/pound (Rs.25-25.5 rupees/kg) while the cost of production in India is Rs.35-36 rupees/kg. As sugar mills export less due to uncompetitive pricing, India stands to lose market share in countries such as Indonesia, China, Korea, Malaysia, Iran, Yemen and Sudan, which it had reached in the 2019-20 season, according to National Federation of Cooperative Sugar Factories. As a result, it might lose its share in the global market to Brazil, the world’s largest exporter of sugar.

Lesser exports will also lead to a liquidity crunch, which will eventually result in sugar mills not clearing farmers’ dues in the stipulated time, or maybe, ever. Reportedly, sugar mills owed nearly Rs.130 billion to cane farmers as on September for the crop procured during 2019-20.

Meanwhile, the government keeps pushing for ethanol production in order to get rid of surplus sugar.  Recently, it has also raised the procurement price of ethanol by Rs.1-3. However, building ethanol capacity will require capital, approvals and time. Adding to the industry’s woes, discussions on increasing the minimum selling price of sugar by Rs.2 per kilogram to Rs.33/kg have also not borne any fruit.

Looks like, the sugar industry is not coming out of the rotating crushers anytime soon.