After falling 20 per cent in the first half of this year, sugar prices have now climbed by 25 per cent over the past two months due to global shortage, deficient monsoon in India and pick-up in festival demand. Sugar stocks are up as much as 100 per cent. In an interview with Bloomberg TV India Indian Sugar Mills Association Director-General Abinash Verma explains the upsurge and the future outlook for the sweetener.

What’s the reason for the recent price uptrend?

In the last 12-13 months, sugar prices had fallen by almost ₹8-9 per kg. So this trend had to stop somewhere and there had to be an improvement. In the last couple of months, sugar prices have recovered by about ₹4-5. It needs to improve further to get closer to the cost of production. The main reason for the rise in sugar prices is that everybody is expecting that there will be shortage in the next season and therefore, global prices have moved up by almost 30 per cent. There are chances that India can move out some of its surplus which is now at about 4 million tonnes (mt). Hopes of exporting about 3.5-4 mt in the next one year and concerns over production shortage in Maharashtra and North Karnataka due to low rainfall, have improved the market sentiments.

What is your outlook on prices?

There is an opportunity now for the domestic sugar industry to push out its surplus into global market. The global market is still offering not a great price. There will still be a loss but it is not as much as it was earlier and there is an opportunity that we can export at a smaller loss and recover that loss from the domestic market. As compared to October 2014, the current domestic ex-mill prices are still lower by a couple of rupees. It is still about ₹4 lower as compared to the cost of production.

Do you feel government steps have addressed the problems of the sector, particularly on the export front?

Yes, surely. We are all aware that there is almost about four mt surplus and that we needed to export this surplus into the global market and see that the domestic prices – accordingly – move up so that of the 85 per cent of our total production we sell in the domestic market, we get a better return. But that gap has been filled up by the government, which has given a quota to each sugar mill proportionate to the production. Secondly, the government has offered better price on ethanol in the last couple of years. Ethanol gives us almost 10-12 per cent of the total revenue and there is a scope of transferring some of the surplus sugar into ethanol.

Do you feel the worst is over?

I believe so. I think the bottom is now out and the last five years we have produced surplus sugar. The gap between the domestic requirement and production is now reducing. Also, there might be more shift of the sugar towards ethanol. The government is expecting that sugar production, which was hovering at about 28 mt, will be about 26 mt from the next year. We are expecting it to be about 27 mt.

Do you have any wish-list for the government? What would be the top priority going forward?

We want the government to actually move out of the policy making or the price fixation of sugarcane. The sugarcane price is up 70 per cent in the last five years compared to 30-35 per cent for paddy or wheat or other crops. So, we have been requesting the government to link the sugarcane price to the sugar price realisation and leave the sugarcane prices to the market forces. Maharashtra and Karnataka have accepted a linkage formula. The other States need to come on board. The Centre also needs to accept it.

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