Indian Sugar Mills Association (Isma) has unassailable logic in asking the government to allow export of at least 1.5 million tonnes (mt) of the sweetener, supported by an adequate incentive in the 2014-15 season (October to September). The season's opening stocks of 7.5 mt will leave the industry with a surplus of 2.5 mt after meeting domestic demand for the first two and a half months ahead of market arrival of new sugar. Export compulsion remains, since the 2014-15 production estimated by Isma is again in excess of domestic requirements.

Production estimates range from a low of 25 mt by farm commodities specialist ED&F Man to 25.7 mt by Isma. Therefore, in the absence of disposal of surplus sugar in the world market, local prices will continue to remain below cost of production, plunging an already beleaguered industry into further losses. Exports will, however, bring relief to the industry only if the government increases the export incentive of Rs 3,300 a tonne available last season in line with falls in world sugar prices. The most actively traded March raw sugar contract at the Intercontinental Exchange is now at 16.36 cents a pound, way below the February 2011 rate of 36.08 cents.

Current world prices would have been lower but for the announcement of Brazilian sugar industry association Unica that factories in the country's principal cane growing centre-south region are shutting down early, in an indication that cane harvesting for the season is over. Market sentiment also somewhat improved on the International Sugar Organisation (ISO) downgrading its projection for Brazilian sugar production in 2014-15 by 1.93 mt to 37.57 mt, a year-on-year fall of 2.06 mt. Industry official Om Prakash Dhanuka says, "World sugar fundamentals have not changed. Investors have been overwhelmingly bearish and they are prone to latch on to news like shortfall in Brazilian output or ISO lowering its estimate of world sugar surplus for this season."
 

According to the US Commodity Futures Trading Commission, the net short positions held by hedge funds and other investors in the first week of this month were the maximum since June 2013. The expected balance in supply and demand after four years of global surplus is unlikely to have much bearing on world sugar prices.

In fact, ISO, which has cut its sugar surplus forecast for the current season by 833,000 tonnes to 473,000 tonnes and is foreseeing the "beginning of a new deficit phase in sugar cycle in 2015-16" is all caution on the price front. Bullishness generally associated with "a looming deficit" will in the case of sugar be tempered by "high stocks" in the system, says ISO. World sugar inventory of around 45 mt brought from earlier seasons will keep prices under check. In the circumstances, Food Minister Ram Vilas Paswan telling Bloomberg "as of now there is no plan to provide any subsidy for sugar exports" is highly disappointing for the local industry, whose inventory burden is set to rise this season. As imports in times of surplus can only harm all sugar stakeholders, Isma keeps on urging the government to raise import duty on the sweetener to 40 per cent from 25 per cent. Equally important, the Association wants imports of raw sugar under advance authorisation scheme to be exported within three months instead of 18 months. Presence of foreign origin sweetener for inordinately long spells allowed under present dispensation keeps local prices down.

The widening gap between cane and sugar prices in the country is a threat to the sustainability of the industry. To give one example, at last year's state settled cane price of Rs 280 a quintal, the cost of production of sugar in Uttar Pradesh was Rs 35 a kg. But ex-factory realisation of Rs 28 a kg left UP factories bleeding. Cane crushing mills in other states incurred losses in varying degrees depending largely on whether growers were paid centre determined fair and remunerative prices (FRP) or state advised prices and sugar recovery rates which range from over 11.5 per cent in Maharashtra to a low of 8.86 per cent in Bihar. Sugar crisis has assumed such serious dimensions that Bihar otherwise not known for taking quick decisions announced ahead of start of crushing this season a cane subvention of 27.50 a quintal to factories. What will, however, do immense good to the industry is the government freezing FRP for at least a couple of seasons as is suggested by Isma. Sugar prices remaining at present level will further emasculate the industry as it will impoverish farm sector.