India’s sugar production for this season has been pegged at 30.2 million tonnes by the Indian Sugar Mills Association (ISMA) in its second advance estimate on January 28, which is lower than its earlier figure of 31 million tonnes.
The lower production is on account of Uttar Pradesh, the biggest producer of the sweetener in the country, where mills are projected to produce 10.5 million tonnes of sugar against 12.63 million tonnes in the previous season.
“(The) estimated lower production this year is because of reportedly lower cane yields and lower sugar recoveries in the state (Uttar Pradesh), higher diversion to gur/khandsari units and much higher diversion of sugar for the production of ethanol by way of B heavy molasses and sugarcane juice,” ISMA said in a statement.
Last season, India's production was 27.42 million tonnes. A body of private sugar mills, ISMA has estimated the carryover stocks from this season to be 8.9 million tonnes against 10.64 million tonnes the previous season.
The estimate for the season, which runs from October 2020-September 2021, takes into account projections of state-wise output and diversion of sugarcane juice and heavy molasses for ethanol.
In Uttar Pradesh, mills are expected to divert 6.74 lakh tonnes of sugar for ethanol production compared with 3.70 lakh tonnes the previous year.
According to ISMA data, sugar production as on January 15, 2021, was 14.27 million tonnes since the season began on October 1, 2020, compared with 10.89 million tonnes during the year-ago period.
Production in Uttar Pradesh during the period was 4.3 million tonnes against 4.38 million tonnes.
Taking into account a 10.7 million tonnes carryover stock, domestic consumption of 26 million tonnes and exports of six million tonnes, besides the production of 30.2 million tonnes, the carryover stocks would be 8.9 million tonnes.
It did not make any projection of the carryover stock in its first advance estimate that was released in October, though private trades had feared the reserves could rise to 15 million tonnes in absence of Centre intervention.
The cabinet on December 16, 2020approved a Rs 3,500 crore incentive scheme for exports, which will entail mills an incentive of Rs 6,000 for every tonne of the commodity exported. The subsidy is available for a total quantity of six million tonnes.
Sugar exporters see the incentive helping raw sugar exports, with Indonesia expected to import at least two million tonnes from India.
At least 1.75 million tonnes of sugar has been contracted for exports since the government announced the scheme. The subsidy and exports are expected to help the industry clear its dues to growers. Till September 2020, mills owed growers Rs 13,000 crore for the crop purchased last season.
This season, the dues have reportedly increased further though no authentic figures are available.
ISMA said the export incentive and an increase in the ethanol prices from the new marketing season that began in December would be good for the industry.
For the current ethanol marketing year, the Centre has increased the price of ethanol extracted from the sugarcane juice to Rs 62.65 per litre from Rs 59.48.
The rate for ethanol from C-heavy molasses has been raised from Rs 43.75 per litre to Rs 45.69 and that of ethanol from B-heavy to Rs 57.61 from Rs 54.27 per litre.
On the price front, the incentive has come at a good time when sugar prices are on the rise on projections of production falling short of demand for the second consecutive year in 2020-21 season.
Sugar prices have gained over five percent in the past month globally, with raw sugar prices in New York rising to 15.81 US cents a pound (Rs 25,600 a tonne) and white sugar in London to $443.90 (Rs 32,350) a tonne.
Raw sugar prices were 14.32 cents a pound (Rs 23,250 a tonne) on December 16 when the export incentive was announced, while white sugar prices were $392.50 (Rs 28,650) a tonne.
ISMA, which has made its estimate using satellite images of the cane area in the second week of January 2021, said production in Maharashtra would be higher at 10.54 million tonnes against 6.16 million tonnes the previous year. The area under cane increased 48 percent and the yields were better.
Production in Karnataka, the third biggest producer in the country after Uttar Pradesh and Maharashtra, would be 4.25 million tonnes versus 3.5 million tonnes.
States such as Tamil Nadu, Gujarat, Andhra Pradesh, Telangana, Bihar, Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Odisha and Uttarakhand are together expected to produce about 4.93 million tonnes, similar to the previous season.
The delay in announcing the minimum selling price of sugar could affect mills’ liquidity and affect payments to farmers.
Trade sources said a committee headed by Union Home Minister Amit Shah had looked into the issue and is reported to have decided on Rs 33 a kg as the minimum selling price but there has been no progress on the issue. Mills are selling sugar at an average Rs 32 a kg.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.