While some things did go in favour of the sugar industry in 2014, they weren’t enough to make sugar producers smile. On the one hand, the industry benefited from better contribution from co-generated power and distillery by-products. But falling global sugar prices were a big overhang and, to make matters worse, ample domestic output kept domestic prices under pressure. Sugarcane procurement costs did not decline, putting further pressure on margins.

Will 2015 be different? As things stand, the industry is staring at another bleak season, with some of the problems of 2014 refusing to go away.

In 2014, sugar prices were a sore point, with international raw sugar futures declining by about 15%, while white sugar prices declined by about 18%. While that should have made exports unviable, companies managed to get by with the help of a raw sugar export subsidy from the Indian government. The subsidy ended in September and the subsidy applicable for the current season is yet to be announced.

Domestic prices, too, have fallen, though by a relatively smaller amount of 4.6%. But the bigger problem is the procurement cost of sugarcane, which has been retained at Rs.280 per quintal in Uttar Pradesh. Things got further complicated because of a Supreme Court decision, which says companies have to sell their stocks, even if held as collateral by banks, to settle farmer’s cane dues. That may make it more difficult for mills to raise working capital finance using stocks, on which farmer dues are unpaid.

How will these factors play out this year? The first factor to consider is the projected sugar output in the new season. Crushing has started on time this year, after the UP state government and sugar mills agreed upon incentives to mills. But a comfortable carry-over stock situation and a normal sugar output is expected to put pressure on prices. Unless the new season’s raw sugar export subsidy is announced, preferably at a higher level or the same as last year, mills may find their margins remaining under pressure.

Global sugar prices, too, continue to remain under pressure, despite Brazil’s sugar output coming lower than expected. Recently, a strengthening dollar has led sugar mills to dump stock to take advantage of their weak domestic currencies, putting further pressure on international sugar prices. A recent report from Rabobank says that lower sugar prices have not affected cropping patterns and crop output is not expected to decline in 2014-15. It expects abundant sugar stocks to keep up pressure on prices.

This year, too, co-gen power and distillery operations should be significant contributors. The government is planning a new ethanol procurement scheme, which may result in higher realizations this year, but gives the government discretion over determining the ethanol procurement price and quantity. Even so, it remains to be seen how this exactly plays out.

As alluded to earlier, the strength of the dollar has reduced the incentive for sugar exporting countries to slash output despite falling prices. Unless the weather plays havoc with the sugarcane crop in a major cane-growing country, no relief on the output front seems visible. It’s no surprise that Indian sugar mills are protesting the prices fixed by the government for sugarcane purchases from farmers. In sum, it is a sobering picture as the sugar industry enters 2015.