Mumbai, Dec. 21: The travails of the domestic sugar industry are far from over. While ex-mill prices continue to fall, domestic production of the sweetener is forecast to outstrip demand during the current season, thereby affecting profitability.
Ex-mill prices of the commodity are now at a three-year low. According to the Indian Sugar Mills Association (Isma), prices have been falling almost on a daily basis in the range of Rs 10-40 per quintal.
The present prices are around Rs 500-700 per quintal, which are less than the cost of production, making it difficult for mill owners to pay even the fair and remunerative price to the farmers.
Globally, too, the picture is not encouraging. With crude prices under pressure, it is feared that Brazil, the largest producer of sugar and ethanol, will produce more sugar, which will be dumped into India, putting more pressure on the prices.
Credit rating agency Icra has forecast that domestic sugar production will increase 3.3-3.7 per cent to around 25 million tonnes during the current sugar year (October-September). The output is seen to exceed domestic consumption for the fifth year in a row.
Icra said in a study that the decline in international sugar prices along with the expectation of higher production during the current season had already affected domestic rates in August and September.
"Despite exports, the current sugar surplus scenario in the domestic market along with the arrival of fresh supply into the market is likely to put pressure on the sugar realisations in the near term'', it said.
In such circumstances, the government's support is seen to be critical to maintain the viability of the mills. The industry is looking at the continuation of the export subsidy to help the mills clear stocks and support prices to an extent.
In February this year, the Centre had announced subsidy on the export of raw sugar up to 40 lakh tonnes to help the cash-starved industry to clear cane arrears to farmers. However, the scheme has not been extended after September.
Icra added that the profitability of the mills in Uttar Pradesh and Tamil Nadu is worst hit because of high cane costs and lower recovery rates compared with the other states.