NEW DELHI – India's sugar production is likely to enter into a correction mode in the next season starting October as a likely below-average monsoon rain may hit cane yield, National Federation of Cooperative Sugar Factories Managing Director Prakash Naiknavare said.
"(In) 2019-20, I see (production) coming down. At this point of time, I think it will be below 30 mln tn. But how much below…that time will tell," Naiknavare told Cogencis in an interview.
While India Meteorological Department has forecast Jun-Sep rainfall at 96% of long-period average, private forecaster Skymet expects the rains at 93% of average. Many international weather agencies have also warned of drier-than-normal monsoon in India.
Poor monsoon rains for the third consecutive year may not only hit cane sowing, but also affect cane yield and sugar recovery.
Many industry experts expect production to even fall to 27-28 mln tn in the next season.
Naiknavare's production estimate for this year too is higher than other experts. He has pegged India's sugar production in 2018-19 (Oct-Sep) at 32.3 mln tn, as against Indian Sugar Mills Association's expectation of 30.7 mln tn. So far this season, Naiknavare said sugar production has already touched 31.2 mln tn, and it could come close to the last year's record of 32.5 mln tn as some mills are still crushing cane.
In Maharashtra, the second largest producer, cane sowing in Apr-Jun will take a hit if rains are delayed or are weak, as water storage in reservoirs is already low, Naiknavare said. Sugar production is likely to tumble in 2019-20 (Oct-Sep) because of drought in major sugarcane growing areas in the state.
There is severe water shortage in major growing areas of Marathwada, Solapur, Ahmednagar, and Khandesh, which account for 60% of the state's sugar production. Cane acreage in these regions could fall by about a third.
Naiknavare also sees farmers switching to other crops due to high cane arrears.
"Cane arrears are a big headache…the distress level of farmers is very high. This could be another reason of a reduction in cane area because a farmer will look for alternatives," he said.
Instead of waiting for 12-15 months for returns from sugarcane, farmers could switch to shorter-duration crops where they get a higher turnaround, Naiknavare said.
Though the government has come out with various policy measures to help the sugar industry, which is saddled with falling prices, supply glut, and liquidity crunch, a lot has not fallen into place.
In February, sugar mills in the country owed a record 220 bln rupees worth of arrears to 50 mln sugarcane farmers. Following government intervention, and as the crushing season has come to an end, the figure has come down to about 190 bln rupees now, but the industry's liquidity problems persist.
Sugar mills are still finding it tough to clear cane arrears as even the minimum sale price of sugar dictated by the government is lower than the cost of production. The average cost of producing sugar in the country is about 34 rupees a kg, while the minimum selling price is 31 rupees, which forces mills to incur a loss of 3 rupees on every kilogram of the sweetener sold.
When fixing the minimum selling price, the government looked at only the cane purchase cost and the cost of converting it to sugar, and it has not taken into account the cost of financing the entire operation, Naiknavare said.
"It (minimum selling price) could be easily 33 rupees (per kg) so cash flow would have been better," Naiknavare said.
To reduce the glut in domestic sugar supplies and aid mills in clearing cane arrears, the government this year has been promoting diversion of sugarcane towards production of ethanol.
"2023-24, sugar industry will be money churner by ethanol and not sugar. Indirectly, domestic sugar realisation will go up," he said.
The Centre introduced various sops to add 3.5-4.0 bln ltr of ethanol capacity by 2020 across 268 mills, according to various industry estimates. It had approved 5.65 bln rupees for loan interest subvention to the molasses-based standalone distilleries.
The impact of a boost in ethanol production will not be immediate on sugar but it will be seen in the long-term. With so much ethanol capacity by next year, the government will be able to achieve its target of 10% blending with petrol by 2020 and it has already achieved its blending target of 7.2%.
Depending on how much distillation capacity is available in the country, the 10-20% blending of ethanol would be achieved in phases. However, if ethanol production falls on track then couple of years down the line, India may have to look at ways to increase its sugar production as its annual consumption is also growing by 2.1%.
On the export front, 2019-20 is expected to be better for Indian-origin sugar. With a global deficit likely in 2019-20 (Apr-Mar), and production in Brazil, the world's largest sugar producer, reducing in 2019-20, India should use it as an opportunity to get rid of the tradable surplus it is holding.
The industry is also lobbying with the government so that it continues its support during the 2019-20 season as well, because with such low international prices, it is difficult to ship out the excess sugar.
"At any given point of time, tradable surplus is 50 mln tn all over the world. India's excess (quantity) can easily get into this amount provided we plan properly," he said.
The carryover for 2019-20 is seen at 11-12 mln tn, and with such high inventory, India will be left with no option other than exporting the sweetener to get rid of the excess.
"They (India) will do much better than what they did because they know exactly what the world wants. World wants raw sugar so (India's) production could be decided exactly towards the beginning of the next season… Our raw sugar is best in the world because we harvest and cut cane fresh compared to others (producers). Quality is very good, free flowing… they (importers) are happy with our quality," Naiknavare said.
Of the 5 mln tn export target set by the government for 2018-19, Indian sugar mills have shipped out 2.2 mln tn of the sweetener until the start of April, and is likely to export 3.5 mln tn this season ending September.