Mumbai: With domestic sugar prices languishing below production costs and a bumper crop likely to push them lower, Indian mills are facing a crisis that recent steps to boost exports won’t alone ease, a trade official said.
“For every kilogram of sugar being produced and sold by us, we are incurring a cash loss,” said Prakash Naiknavare, managing director of the Maharashtra Federation of Co-operative Sugar Factories.
“The question is, how long can the industry sustain this situation?” he said.
Naiknavare said sugar prices have dropped by Rs115-135 to Rs1,185-1,200 per quintal in the last month, depending on the grade.
Meanwhile, production costs in Maharashtra state, which churns out nearly a third of India’s sugar, were averaging Rs1,300 per quintal. Naiknavare said the crisis was triggered by the government’s decision in August last year to ban sugar exports in a bid to curb rising prices and aid the fight against inflation.
Sugar firms resumed exports in January after the restrictions were ended but lower global prices have made exports unattractive. India, the world’s second-largest sugar producer, is expected to produce a record 26 million tonnes (mt) of sugar in the year to September, against annual consumption of 19-20mt.
When carryover stocks from the last cane-crushing season are added, a surplus of about 10mt is building up in warehouses around the country.
Sweet deal: The government has offered mills subsidies on the production of white sugar
Naiknavare said domestic mills are not likely to export more than one million tonnes in the crop year to September.
“What do you do now with this huge surplus?” he said. “Our godowns are overflowing. And each month you store sugar, you pay interest.”
“Prices are definitely going southwards.” Trade officials say India is exporting sugar in a price band of $325-350 (Rs13,325-14,350) per tonne cost and freight.
Naiknavare said domestic prices in other key-producing regions such as Uttar Pradesh were only slightly higher, and mills there were facing a similar problem. Sugar industry officials have appealed to both the Centre and state governments for help, he added.
“The sugar industry is in a crisis, but we are hopeful that within the next two months, the government will announce policy measures to help us.”
Among measures officials could consider are doubling the size of buffer stocks to 4mt, and extending a recently announced package of export subsidies to raw sugar, he said.
The government has offered mills in coastal regions a subsidy of Rs1,350 a tonne on white sugar, while those in the north of the country will receive Rs1,450 per tonne.
Another option would be to divert more surplus sugar into ethanol production.
Agriculture minister Sharad Pawar said in Parliament on Monday: “We’re seriously thinking of allowing the use of secondary sugar for ethanol manufacturing.”
But Naiknavare said state-run energy firms were offering such low prices for the biofuel that more than half of current production was not being bought. Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp. and IBP Co. are buying ethanol at Rs21.50 a litre, officials have said.
“In my estimate, only about 30-40% of the ethanol available has been picked up,” he said. The retailers must buy 550 million litres of ethanol to meet demand for a 5% ethanol-blending programme.
Naiknavara said a realistic price for ethanol would be Rs25 per litre, which would still leave a big price gap as imported ethanol costs about Rs35 per litre.
Bloomberg contributed to this story.