There’s a dichotomy in India’s sugar sector. Sugar manufacturers who were in deep distress even a few months back are now getting healthier and their shares are soaring on expectations of sugary days ahead. But there’s a shortage of sugar supply across India on the back of two droughts that turned India into an importer from an exporter of the sweetener.
Speaking Bloomberg TV India , Sakthi Sugars Executive Chairman M Manickam says prices are unlikely to come down with imports, neither will it go above ₹40 per kg. With firm prices, most of the companies are able to clean up their balance sheets, he said.
The prices have now come to break-even territory. So most of the sugar industry will pick up again and probably we’ll be looking at a good year or two. Basically, this is based on the shortage coming out of the bad monsoon for the last two years. This year, hopefully, it will be good for the country and most of the companies will be able to clean up their balance sheets.
If we do see a good monsoon, how will it change the scenario?
It will be good as our production will pick up. What has happened is: the consumption in India is about 26 million tonne and we actually had an excess of 3-4 million tonne of sugar for the last two years. The government should have probably created a buffer stock, which they did not. They actually believed in exporting when we have surplus and importing when we have a deficit. We started exporting too late and we have not done enough really. And now we’ve to start looking at imports from next year.
What’s your expectation from the government in terms of policy interventions? Is there any expectation this time for scrapping duties on imports or taking a relook at exports?
The government has taken a view on exports anyway and subsidies on exports have been rescinded. So, there’s no incentive to export at this point of time. I think exports are out of picture and the Agriculture Minister has made the statement that if sugar prices go out of line, they will be reducing the duty. We are looking forward to a reduction in duties as well if prices do go over a range. They have made it very clear and the statements indicate they are open for imports as well. We will have to wait and see what happens in the market and how production and other variables pans out.
We understand that a lot of variables are currently at play. So we have to look at what possibly may happen on the import front and the production level back home. What is the likely scenario that you have to work on currently with prices?
I don’t think the prices will go above ₹40 per kg. I think the government is looking at ₹40 as the ‘Lakshman rekha’. And if imports are allowed, I don’t think the prices will go above ₹38-40. That is what we are looking at for the long term.
What about the domestic demand scenario?
We’re looking at 26 million tonne as annual demand in the current year. The demand is expected to grow by 2.5 per cent a year. We are looking at consumption going up by 1.5 million tonne every year because of growing population and increasing consumption. We are not looking at any drop in consumption and the sugar price per se. If you look at the consumption basket of a household, the share of sugar is very small. I don’t think demand will really be affected much in terms of price variation or consumption.
Is domestic demand strong enough for the exports to make an impact?
Not really. There’s not enough sugar to be exported. We have stocks just to serve domestic demand. There has been some impact with the announcement government made on import duties. But even then I think imported sugar is not going to come below ₹35 per kg.