The Union Cabinet may consider incentives for sugar exports for the current season at a meeting later on December 16. A favourable decision will provide some momentum to sugar shipments that came to a standstill on October 1.
“The cabinet is meeting today and we hear it has been listed for discussion,” said a sugar mill official, who didn’t wish to be identified.
According to Abinash Varma, Director-General of Indian Sugar Mills Association (ISMA), there was talk of the government providing a subsidy of about Rs 6,000 a tonne.
“Initially, a proposal was sent to the cabinet to approve Rs 9,500 a tonne incentive but it was returned. Now, the proposal is to provide Rs 6,000,” the official said.
The subsidy could be given for shipments of 50-60 lakh tonnes. The incentive is against the average Rs 9,750 a tonne provided last year for sugar exports.
The incentive depends on the location of the sugar mill and the distance to the nearest port. Some mills had got as much as Rs 10,500 as there were located in interior parts of states such as Uttar Pradesh.
The subsidy offer incentive last season, which ended on September 30, helped sugar mills to export a record 57 lakh tonnes.
“Lack of incentives had slowed exports. Not enough sugar has been sold from India. The industry has been waiting for a long time for the incentive,” Rahil Shaikh, Managing Director of MEIR Commodities and Vice-President of All India Sugar Traders Association (AISTA) said.
The expected announcement has brought down sugar prices in the global market from 17 US cents a pound for raw sugar to 14 US cents. It is quoting at 14.21 cents.
Sugar prices rallied in the global market following the Indian government’s delay in announcing the incentive that would have boosted exports. Prices rallied since India, the world’s second-largest producer of sugar, has emerged as the only country with stocks enough to meet global demand.
Similarly, white sugar prices in London, which topped $410 (Rs 30,150) a tonne, have dropped to $392.50 (Rs 28,850).
Factory-gate prices of Indian sugar range from Rs 31,000 a tonne in Maharashtra to about Rs 33,500 in Uttar Pradesh.
ISMA’s Varma said that India lost an opportunity to export 10-12 lakh tonnes of sugar since October 1. ISMA is the apex body of private sugar mills.
Shaikh said India would have probably sold only one lakh tonnes of sugar since October 1.
The drop in global prices is not a good sign as Indian exporters could lose parity if they slide further.
“We expect the market to settle at a comfortable level once the new incentive is announced,” Shaikh said.
Indian sugar mills hope to export at least 50 lakh tonnes this year. Exports are key for the mills to cut their inventories and ensure liquidity.
“Exports will help sugar mills’ liquidity. Also, the market will move up once the picture is clear,” said DK Sharma, Wholetime Director, Awadh Sugar and Energy Limited.
Exports and higher domestic prices will help mills clear cane growers' dues.
As on September 11, sugar mills owned growers nearly Rs 13,000 crore for the crop procured in the last season, Minister of State for Food and Consumer Affairs Danve Raosaheb Dadarao’s told Parliament.
Once the cabinet decides on the sugar export incentives and an order is passed, Indian exporters are expected to meet demand emanating particularly from South-East Asia and West Asia.
The millers wanted to make good of a window of opportunity available after arrivals from Brazil, the world’s biggest sugar producer, ended. The new crop will not hit the market until March and it will provide Indian exporters an advantage.
India needs to export at least 50 lakh tonnes of sugar because of higher production this season.
“Production is higher at 31 million tonnes this season. We will review the situation in January,” ISMA’s Varma said.
Last season, India’s sugar production was 27.42 million tonnes.
This season, the sugar industry’s problem has been compounded by a high 10.64 million tonnes of carryover stocks from the last season. Failure to export a significant quantity could result in the carryover stock topping 15 million tonnes this season.
Awadh Sugar and Energy Limited’s Sharma said sugar production could probably be lower than the initially estimated 31 million tonnes.
“Sugar recovery from cane is at least 0.8 percent lower, which is huge in terms of production. Also, the productivity of sugarcane per hectare is lower by at least seven percent. Then, there could be a diversion of sugar for B-heavy molasses for ethanol production,” he said.
ISMA has estimated that at least two million tonnes of sugar production would go into making molasses this season since the government has raised the price of ethanol supplied to oil-marketing companies.
On October 29, the Cabinet Committee on Economic Affairs decided to increase the price of ethanol extracted from the sugarcane juice to Rs 62.65 per litre from Rs 59.48 for the supply year that began on December 1.
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.
The export subsidy will help the industry since the sugar market is expected to be almost balanced during the current season.
Sugar production could be lower-than-expected as the crop in Brazil and the Americas is being threatened by La Nina, a weather pattern in the Pacific Ocean that is known to cause droughts.
Global sugar production, including from beet, during 2020-21 is forecast at 173.46 million tonnes but sugar consumption could also rise by 2.6 percent to 174.19 million tonnes. That will result in over 0.7 million tonnes deficit.
Indian exporters feel they can sell raw sugar at a rate higher than the price in New York.
(Subramani Ra Mancombu is a journalist based in Chennai who on commodities and agriculture)
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