Delay in finalising raw sugar export sop hurts mills

This, as sale price drops below cost of production

The government’s delay in deciding on the export incentive for raw sugar is likely to affect the financial position of 450-odd sugar mills, particularly in Uttar Pradesh. This could again lead to farmers being left unpaid.

Officials said the food ministry had proposed a Rs 4,000 export incentive per tonne of raw sugar for shipping a surplus 1.7 million tonnes in the 2014-15 season that started in October. This is Rs 700 more than the incentive provided in the 2013-14 sugar season that ended in September.

In 2013-14, the incentive was announced in February and was for export of 4 million tonnes of raws. Only 0.8 million tonnes were shipped as the international price of raw sugar had dropped by the time government announced its export policy. Objections from a section within the government that wants the ethanol blending programme for fuel to absorb the sugar surplus is holding up the decision. “Hopefully, the Cabinet will take up the matter next week,” a senior food ministry official said. “The idea that the sugar surplus should be used to produce ethanol and not exported is fine, but this is a long-term solution. What is needed is a faster option, so that mills can clear their cane dues for 2014-15,” he said. Sugarcane dues to farmers on April 1, 2014, were over Rs 12,500 crore, which declined to Rs 1,000 crore by September 30, 2014. Mills fear that since the purchase price of sugarcane is around Rs 10-20 higher per quintal in 2014-15 than in 2013-14 while the average realisation from sugar is lower, arrears will mount again.

“The national average ex-mill price of sugar in 2014-15 till December is around 2,650 per quintal, while the cost of production is Rs 3,100-3,600 per quintal. Mills are making a loss in producing and selling sugar this year,” a senior industry executive said. He added the average realisation from sugar in 2013-14 was around Rs 3,050 per quintal.

“Due to lower realisation, banks have stopped extending working capital loans,” another industry executive said. “Last year, the export incentive was announced in February while the peak export time is till March. If the government takes time in deciding on the export incentive, the opportunity to export will be lost again,” the executive added.

The recent government order to set the price of ethanol for oil companies is not enough to wipe off the losses of sugar mills. “The move will help some mills in Maharashtra because their cost of producing ethanol is lower than the price set by the government, but it is of little use to the Uttar Pradesh-based mills,” the official explained.

“Time is running out. We hope government takes a quick decision or else the cane arrears could be over Rs 12,500 crore by April 2015,” he added.

India’s sugar production in 2014-15 is expected to be around 5 per cent more than last year's at around 25 million tonnes.