Sugar firms face a problem of plenty

Call for allowing exports, tariff protection, removing curbs on futures trading.

The sugar industry is facing a problem of plenty. Initial estimates indicate all-India production in 2010-11 in the range of 25-28 million tonnes, due to good monsoon and excess cane production.

The industry is worried at the prospects of a drastic fall in sugar prices, increased interest burden and lack of storage. Industry sources told Business Standard, “At the beginning of the crushing season (October), there will be a sugar stock of 9.4 million tonnes, comprising carryforward stock of 3.5 mt, five mt raw sugar imports and 0.9 mt of refined sugar already procured. The stock would increase to more than 11 mt after the crushing season.”

Sources at the Federation of Cooperative Sugar Factories Association said mills would have to tackle a major storage problem in the wake of the rise in production. “Sugar bags either will be stored in the open or in rented godowns. Ultimately, mills will have to incur additional expenses for additional storage. And, there will be an interest burden of Rs 200 per unsold bag. This will put pressure on the finances.”

Federation sources said the Centre needed to act fast and impose a 60 per cent duty on sugar imports, besides creating a buffer stock of five mt. Exports would have to be promoted to take advantage of global prices, they said.

A representative of the Indian Sugar Mills Association, who did not want to be quoted, said the government needed to formulate a long-term policy on export and import of sugar, instead of the present “hotchpotch policy”.

Yogesh Pande, founder-president of the Maharashtra Sugar Brokers and Merchants Association, made a strong pitch for immediate commencement of exports. “Otherwise,” he said, “The situation will become precarious. The industry is expecting huge production, amounting to 27-28 million tonnes. This may rise further. We will end the next season with a huge surplus.”

Since traders are expecting surplus production, he said, the situation would be similar to three years earlier, when prices were Rs 1,100-1,200 per quintal against the current price of Rs 2,250-2,300 per quintal. That dip in prices had forced the industry to export sugar at Rs 900-1,000 per quintal. Subsequently, the government had to give a subsidy for these.

Pande also suggested the Centre remove restrictions on futures trading, stock limits and licensing.