Sugar season 2020-21 to end with lower stocks, Rs 7,000 cr unpaid dues

The record drop in stocks has largely been due to bumper exports of seven million tones and diversion of 2.1 million tones of sugar towards ethanol

6 min read Last Updated : Aug 26 2021 | 10:17 PM IST

India is expected to start the 2021-22 sugar season beginning October with an opening stock of about 8.7 million tonnes, which will be lowest in the last four years. Despite that, Rs 5,000-7,000 crore will still remain to be paid to sugarcane farmers as arrears for the crop supplied by them in the season.

The record drop in opening stocks has largely been due to bumper exports of almost seven million tonnes and diversion of 2.1 million tonnes of sugar towards the manufacture of ethanol.

Though the opening stocks are much lower than the previous year, they are still higher than the normative stock levels, which are equivalent to two months' consumption that are necessary to keep supplies steady.

Supplies will also be steady because in the coming year (2021-22), sugar production according to the Indian Sugar Mills Association (ISMA) is expected to be about 31 million tonnes, almost similar to the current year’s production of 30.9 million tonnes, even after accounting for 3.4 million tonnes of sugar diverted for producing ethanol.

According to ISMA estimates, sugar production in Uttar Pradesh is expected to be 11.9 million tonnes in 2021-22, while in Maharashtra, production is expected to be 12.1 million tonnes, Karnataka is expected to account for 4.87 million tonnes, while other states are expected to contribute 5.46 million tonnes to the overall sugar production in the country.

Overall, around 5.45 million hectares of land has been brought under sugarcane this year across the country which is 3 percent more than the current sugar season.

The area under sugarcane is around 11 per cent more than last year in Maharashtra, while in UP it has gone up marginally by 0.21 per cent.

In Karnataka, around 4.19 per cent more area has been brought under sugarcane in 2021-22 over the 2020-21 season.

ISMA said that in the ongoing sugar season which will end in September, around 2.1 million tonnes of sugar have been diverted towards ethanol, which will go up 3.4 million tonnes in the coming sugar season.

“In 2021-22, since the target of 10 per cent blending is expected to be achieved, about 4.5 billion litres of ethanol would be required, which is 1.17 billion litres more than the expected supplies in 2020-21. Assuming that most of the additional quantity of 1.17 billion litres will come from sugarcane juice and b-heavy molasses, it will translate into diversion of about 1.3 million tonnes of more sugar as compared to previous year. This would mean a total of approx 3.4 million tonnes of sugar will be diverted into ethanol next season,” ISMA said.

Had this sugar not been diverted towards ethanol, supplies would have gone up even further.

Exports

Sugar exports from India in 2021-22 is expected to be 6-7 million tonnes, which is almost at the same level as this year.

But, a crucial differentiating factor is expected in the coming year. Exports might be without any subsidy requirement as international prices are expected to remain high.

Trade and market sources said if international raw sugar prices stay around 20-20.5 cents per pound, exports from India will become viable without subsidy.

In the coming season around 0.9 million tonnes of sugar has already been contracted for exports without subsidy.

Brazil drought

The international sugar market is expected to remain favourable for India at least till March and April 2022, due to lower-than-expected Brazilian crop following one of the worst droughts in that country.

Brazil is the world’s largest sugar producer and any drop in its production has a direct impact on the global markets.

Reports say Brazil, the largest sugar producer in the world, is expected to produce just 29 million tonnes of sugar in the 2022 season as against 41 million tonnes in 2021.

India being the second largest producer, stands to gain naturally if Brazilian production drops.

“Global white sugar prices started rallying in the beginning of August and had reached a four-and-a-half-year high of $504 per tonne as on 17th of the month, up 28 per cent year-on-year. Inclement weather is affecting sugar production in Brazil and this, in turn, is expected to impact global supply in the upcoming 2021-22 sugar season (October to September),” the Crisil report said.

Global sugar prices are projected to rise up to March 2022 as global sugar supplies are expected to be in deficit despite the third wave of Covid-19 gripping Australia, Europe and the US, Crisil added.

“Though, production in Thailand is expected to improve by at least three million tonnes, still it won’t be enough to breach the deficit fully, which will leave India as a big player in the global markets at least for the next 6-7 months,” a senior industry official said.

Domestic markets

Not only internationally, sugar prices in the domestic markets are also expected to remain firm in the coming months.

The Crisil Report said that in the 2022 sugar season, inventories are expected to deplete further to 6-7 million tonnes as mills are expected to divert a higher amount of cane towards ethanol (with the government’s push to increase blending with petrol) and export 5-6 million tonnes of sugar.

This is expected to trigger about 11% year-on-year price rise in the domestic market in sugar season 2022.

“S-grade sugar prices that touched Rs 33 per kg in August 2021 are expected to rise further in the sugar season 2022. Domestic prices would also benefit on expectation of lower inventories, with significant amount of cane likely to be diverted for ethanol blending with petrol in sugar season 2022,” Crisil said

A benign domestic, international and export market, along with strong focus on ethanol production should augur well for the Indian sugar sector in 2021-22, but how far will it translate into timely and quick payments to farmers remains to be seen.

Table: Sugarcane arrears as on September 30 (Rs cr)