New Delhi: The sugar industry, hit by problems of plenty, is in for more trouble with forecasts of a bumper crop for the second consecutive year.
Sugar output in the year starting October could exceed 28 million tonnes (mt), 1mt more than the projected record production this year.
The industry’s woes started last October when the new season began with an inventory of 4mt. Trade officials say stocks at the end of the season would amount to 10mt, compounding problems.
“Now, what are you going to do with all the stock, are you going to sink it in the sea?” asked Shanti Lal Jain, director general of the Indian Sugar Mills Association.
India’s prospects are being hemmed in by the glut, which some industry analysts believe could persist into the season starting October 2008.
The government last month said sugar mills in coastal areas would get a subsidy of Rs1,350 a tonne, while those in the north of the country would receive Rs1,450 per tonne to help prop up exports.
Surplus stock: Industry insiders say becoming a regular exporter of raw sugar could be the only way out of the current situation.
But the incentive was only for white sugar. Analysts said the move has not helped much, as buyers in the region, including Bangladesh and Pakistan have set up refineries, blunting demand for Indian white sugar.
“If the situation has to change, the only way is for India to become a regular exporter... of raw sugar,” Jain said. “In raw sugar, India has a distinct advantage in freight costs over Brazil and Thailand in exports to the region.”
The strengthening rupee has also blown a hole in exports. “There has been a slowdown in exports because even domestic prices are better than exports now,” said Ajit Chougule, secretary of Maharashtra State Cooperative Sugar Factories Federation Ltd. Local prices are about Rs12,000 a tonne, from about Rs18,000 a year ago.
“The government has done the damage and they should know how to control it,” said M. Manickam, managing director of Sakthi Sugars Ltd, referring to a ban on exports in July last year that the industry says is the root of the problem.
Profits of many sugar companies have nosedived in the January-March quarter. “Next year will be even worse,” said G.S.C. Rao, executive director of Simbhaoli Sugar Mills Ltd.
“There is no hope of recovery in prices until the next season. It will be more or less flat at these levels, may be 4-5% here or there,” said Shardul Sharma, an analyst at Sharekhan.