The Indian sugar industry, secondlargest in the world, is creatingatrap for itself.
Early this year, millers were not keen to export tonnes of sugar to correct the high surplus and improve domestic prices arising out ofarecord output.
Millers producedarecord 32 million tonnes (mt) of sugar in the 201718 season against an estimated domestic demand of 25 mt. The season began withasurplus of about 4 mt from the previous year.
Another 7 mt of surplus was added to the system.
The fortunes of the industry tookabeating and price crashed from ~3,740aquintal at Mill Gate in Maharashtra in October 2017 to ~3,140 in March.
The industry wanted to ship part of this surplus and the government came up with an export quota of 2 mt in March.
This sugar was meant to be exported by September, before the start of the next production year. But there wasagap between international and local prices.
Mills would have incurred heavy losses in exports.
In May, the government approved an incentive of ~5.5 on every quintal of sugarcane crushed by mills.
That bridged the gap and somecontractsstartedtakingplace for exports.
The mills were then realising ~2,500aquintal from domestic sales. After adjusting the incentive and other costs, loss on export was negligible.
Butamonth later, the Centre announced steps to support the industry through the creation ofa 3 mt buffer stock and fixingaminimum sugar price of ~2,900aquintal. No local transaction was allowed to be done below this threshold.
The measures lead to an increase in domestic price to ~3,200levels.
The improved realisation in domestic market prompted the industry to go slow on exports, ignoring the perils of high surplus stocks.
“The sugarcane incentive helped mills to make good the ~700aquintal gap between international and domestic prices and undertake exports.
But the situation changed and international prices softened, while domestic prices shot up. This brought back the gap. The current incentive needs to be doubled to ~11aquintal to push sugar out,” said Prakash Naiknavare, managing director at NationalFederationofCooperative Sugar Factories.
Assuming the 201819 output to remain unchanged at 32 mt and domestic offtake at 25 mt,asurplus of 7 mt could be added to the current 11 mt. The industry could start the 201920 season next October with this kind of record stock.
Since the bulk of the sugar gets sold in the domestic market, this surplus will push the domestic realisation down.
Thus, it is sensible to export part of the surplus, even if it is ataloss. The average realisation would still be better.
“Nothing can change unless the stocks go out of the country.
No improvement can happen since there is excess inventory.
But cooperative mills are answerable to multiple stakeholders and it is not easy for them to decide onalossmaking proposition,” said Naiknavare.
The industry is now seeking more sops.
He said requests had been made to increase the export quota to 8 mt.
He wants the sugarcane incentive to be doubled to ~11aquintal. “The industry can make raw sugar that has more demand globally.” Tarun Sawhney, vicechairman and managing director of leading private sugar maker Triveni Engineering, said the industry needs to undertakeamuch larger export exercise next year.”