Why the sugar sector needs succour

Today, the sugar industry is going through a tough time as the issue of mounting dues that mills have to pay sugarcane farmers seems to be a hard target.

Surplus in the market along with weakness in overseas prices led to a sharp fall in domestic prices and margins of most sugar companies came under strain due to weak realisation on sales. This made it harder for mills to make payments.

Total cane arrears stood at ₹9,252 crore as of July 31, out of which UP mills alone owe over ₹5,000 crore to farmers.

In order to help the industry, the Government also took steps from time to time to put an end to this crisis. Backing the industry to produce and export raw sugar was one of the main proposals.

Hence, in February, the Cabinet Committee on Economic Affairs permitted a subsidy on the export of raw sugar for shipments of up to four million tonnes.

The subsidy was fixed at ₹3,300 a tonne for February-March. The subsidy amount was calculated on the basis of the exchange rate at that time and it was decided that the rate will be reviewed every two months.

In April-May, it was cut to ₹2,277 and then again raised to ₹3,300 for June-July. This move of raising the raw sugar export subsidy was mainly due to depreciation of the rupee.

Recently, the raw sugar export subsidy for August-September was increased to ₹3,371. The scheme came into execution amidst escalating pressure for sugar export due to rupee depreciation and falling interest among millers who were suffering losses due to a mismatch between selling price and procurement cost.

However, the hike in sugar export subsidy couldn’t help UP millers much due to distance from ports. But, this will offer benefits to Maharashtra and Karnataka mills.

The industry is waiting for the Government’s clarity over continuation of the export incentives next season i.e., 2014-15 (October-September) and a decision is expected by September.

However, Food Minister Ram Vilas Paswan had stated that the Government would continue the export subsidy apart from other measures only after sugar mills give an undertaking that they would first clear the arrears.

India’s sugar production is estimated at 24.3 million tonnes in the 2013-14 marketing year with the annual demand being 24 mt as by the Indian Sugar Mills Association.

The closing stock for the current year is seen at around 7.5 mt. The country is forecast to produce 25.3 mt during 2014-15 marketing year starting October 2014, higher by over 4 per cent year-on-year.

Total sugar exports are likely to be around 3.2 mt this season. Some 3.04 mt have been exported till July 2014. About 25,000 tonnes of raw sugar could be exported during August-September, according to the Sugar Directorate.

Till date, over 6.20 lakh tonnes of raw sugar have been exported with the subsidy, according to data from Government officials.

Huge stockpiles are keeping prices under check in the domestic market as mills with surplus supply continue to sell in the local mandis due to disparity in exports even after the export Government has extended incentives.

Hence, in order to ease this burden, the Government should come out with more effective proposals to encourage exports and curb imports of sugar to provide the much-needed relief to the bleeding industry.

This may also help sugar mills to clear the overdue payments to farmers.

The writer is a Research Analyst at Geojit Comtrade Ltd. Views are personal.