Sugar production may be revised lower despite initial optimistic trend

Maharashtra may produce significantly lower quantities of the commodity this year due to drastically lower rainfall and white grub infestation

Sugar production in India during the 2018-19 season that begun in October has risen by 6.8 per cent to reach 11.05 million tonnes. Indian Sugar Mills Association (ISMA) said in a release that higher production is attributed to the fact that Maharashtra and Karnataka sugar mills started crushing operations earlier this year. However, due to substantially lower rainfall and white grub infestation, Maharashtra is likely to produce significantly lower quantities of the commodity this year as compared to the last. "Overall, the country is expected to produce much less sugar this season as compared to last,” ISMA said.

ISMA has not revealed how much lower it expects the output to be, but compared to last year’s 32.5 million tonnes in 18-19, its own estimate had projected 31.5 million tonnes in 2018-19. ISMA had also said that it would be conductin a survey later this month and, “will review the estimate of sugar production for the season 2018-19 and if required revise its estimates.”

An industry source from Maharashtra says the state is going through a bad situation and needs more sops. The fall in Maharashtra's output is likely to bring the total production to 31.05-31.1 million tonnes, maintained the source, who also said that ISMA has called a meeting of mills on January 21.

Till December end, 184 mills in the state produced 4.34 million tonnes sugar against 3.84 million tonnes last year but, “due to lower availability of cane in Maharashtra and the early start, the mills therein would be closing much earlier than last year,” ISMA said in a note.

Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA, says, “Production in the 2018-19 sugar year is expected at 31.5 million tonnes, (but) it could be further impacted by the diversion of ‘B’ heavy molasses and sugarcane juice away from sugar and towards ethanol. Notwithstanding these positives and estimates of growth in domestic sugar consumption by 2-3 per cent to around 25.8 million tonnes this year, the production would still be higher by at least 5.5 million tonnes than the estimated consumption. Even after assuming 4-5 million tonnes of sugar exports in SY2019 on the back of the increase in the production subsidy, the closing stocks still would continue to remain high at around 11.3–12.3 million tonnes, given the high opening stocks of around 10.5 million tonnes from the previous season.”

Majumdar believes that the higher cost of cane in the production process, along with supply-induced pricing pressures, is likely to result in margin pressures. He says the increase in cane arrears is likely to add even more pressure, although the outlook on margins is somewhat better than in the rating agancy's earlier estimates.