New Delhi: India’s plans to more than double its sugar buffer stock would ease the worries of firms burdened with huge stocks, but were unlikely to offer much support to prices, a top industry official said on Tuesday.
The government was considering a plan to raise the buffer stock to 5 million tonnes from 2 million, farm minister Sharad Pawar had said on 4 June. The sugar industry had asked for help to cope with a sugar glut.
“This will only be like the government holding the industry’s hand for some time,” Shanti Lal Jain, director general of the Indian Sugar Mills Association, told Reuters.
“It will help to the extent that the burden of carrying the heavy stocks would be somewhat lightened,” he added.
Mills have been hit by falling global prices and huge stocks, and are struggling to make timely payments to sugarcane farmers and to export sugar.
India, the world’s second-largest sugar producer, is expected to produce a record 27 million tonnes in the year to September, against annual consumption of 19-20 million tonnes.
Trade officials say the stocks at the end of the season would amount to more than 10 million tonnes, as the new season began with an inventory of 4 million tonnes. “We have never had such excessive production ever. The mills don’t have the ability to hold additional stocks on their own account because it costs a lot in interest and storage,” Jain said.
Many are unable to find space in overflowing warehouses, he said.
Plunge in Prices
The supply glut has pushed domestic prices to their lowest in three years, while raw material costs have gone up by around 20 percent during the same period, analyst Licht said in its International Sugar and Sweetener report released on Monday.
Domestic prices have plunged to 12,000 to 13,000 rupees ($296 to $321) per tonne, slightly below the cost of production, while international sugar prices have fallen to $310-$330 per tonne in the past few days from $500 last year due to a worldwide glut.
Jain said Indian sugar was being sold at a price of $270 per tonne in international markets due to lower colour quality and purity.
“Even now, the bearish trend in prices is continuing,” Jain said. “Increasing the buffer stock will not help to check the price fall.”
The International Sugar Organisation put the global supply surplus at above 9 million tonnes this season, compared with its previous forecast of 7.2 million tonnes made in February.
“Next year, we are again going to produce more,” Jain said, referring to industry estimates of 28 million tonnes sugar production in the year starting October.
The scope for exporting refined white sugar has also narrowed with India’s traditional markets in the region such as Bangladesh and the Middle East setting up their own refineries.
Jain said there was still room for exporting large quantities of raw sugar to countries in the region, but added that the government needed to quickly put together a comprehensive policy package to encourage overseas sales.