Fearing a shortage in sugar supplies in FY17, the Centre is considering export curbs. The industry is not perturbed by the proposed move to scrap an order that allowed sugar mills to export excess supply.
It is only fretting a back-to-back drought for three years, which may turn India into a net importer next season, Sakthi Sugars Managing Director M Manickam told Bloomberg TV India.
The Centre should allow sugar prices to stay at about ₹34 per kg, which is just the breakeven point, he added.
I think they (the Centre) are probably going to regularise what has already happened because they wanted to export 4 million tonnes of sugar and they set a target of a minimum 3.2 million tonnes, or 80 per cent of the target.
The industry has already exported about 1.5 million tonnes. Now, with the drought, we are expecting that we’ll be going into a deficit next year.
In fact, the global prices are no longer remunerative and so people have stopped exporting. This is probably legitimising the fact that we know there is going to be a shortage. So I don’t think this order is going to have any impact on the market at this point of time.
Domestic sugar prices have jumped almost 40 per cent this year. Is it sustainable, because we are hearing that the government is looking at capping the prices as well?
Whatever you saw earlier was the distress price. To break even, the industry had to maintain the prices at ₹34-35 per kg over the past two years. In fact, we were forced to sell even at ₹20 in June 2015.
Now, it has come to ₹34, which is just about breakeven price. So, I don’t think the industry has really benefitted from the price prevailing right now as it has probably broken even for the first time in three-four years.
I think the government should be willing to live with these prices. However, what we are looking at is a shortage going forward and, in hindsight, we should have created a buffer of 5 million tonnes when we had stock surplus rather than pushing for exports.
So, right now, what we can do is hold on to the stocks we have and see how far it goes.
The Cabinet has also imposed limits on the quantity that sugar traders and big consumers can stock, fearing a production shortfall. Will this lead to a jump in prices in the near future?
No, I don’t think there is going to be any major impact on the market. The market has already discounted it.
What we are worried about is that we will have a shortage in the next sugar years, which is 2016-17 and 2017-18. That will depend on what type of crop we have in Maharashtra and Karnataka.
These two States have been very badly affected by the and that’s what we are worried about.
Earlier, the Centre agreed to pay farmers about ₹45 per tonne of sugarcane produced to encourage exports. Now that the export incentive is going to go away, do you think the Centre is going to pay this amount? How is this going to affect farmers’ income as also the earnings of sugar companies?
That is only linked to exports and we’ll have to see how that impact turns out. But actually, the government has not paid the money out of their pockets.
They increased the duties by ₹100, which has also increased the prices of sugar in the market. So it is like a zero-sum game — they have taken the money from the consumer and given it to the farmers.
In the absence of a subsidy, they will probably have to reverse the levy that they put on sugar, which might actually reduce prices.
In the current year, what’s going to be the breakeven price for sugar for the industry?
The breakeven price will be ₹34-35 per kg. If we go below that, we are not going to break even.