Sugar mills urge govt to re-introduce minimum indicative export quota

Ask for an earlier scheme to be revived as prices slide after surplus production

Hit by a sustained fall in prices for their output, sugar mills have urged the central government to re-introduce the earlier Minimum Indicative Export Quota (MIEQ).

Introduced in September 2015 for sugar season 2015-16, this had allowed mills to export (the Centre has to permit any shipment) a cumulative four million tonnes (mt) of white sugar, with allocations up to a cap among mills, within a specified period. The aim was to cut surplus stock within the country. 

Within six months from its introduction, the government withdrew the scheme, amid forecasts of lower production in 2016-17. At the time, the government had also paid Rs 4.5 a quintal to cane farmers directly into their accounts.

The sugar industry is pleading that their plight is similar or worse this year, with nearly four mt of stock carried over from last year (the sugar year begins every October 1), another four-five mt of surplus production this year and expectation of a bumper production next year.

“The MIEQ scheme needs to be re-introduced for at least two mt of white sugar in the current season. Also, the government should announce four mt of raw sugar export for the next season,” said Abinash Verma, director-general, Indian Sugar Mills Association (Isma).

The industry estimates a surplus of 8.5-9 mt by the end of current season (September 30); the country's total annual consumption is about 25 mt. In January, the government had levied a quota under which mills were allowed to release only 17 per cent of the cumulative quantity of the previous month’s inventory plus production for February. Similarly, only 14 per cent of the cumulative quantity of the previous month’s inventory plus production for March was ordered to be released into the market.

“When this quota mechanism was announced in January, total production was estimated at 26.1 mt, marginally higher than India’s estimated consumption of 25 mt. Sugar prices had jumped by 10 per cent due to this release announcement in two months ending the second week of March. But, this price gain was washed out within a few days of the revision in sugar production estimates by Isma at 29.5 mt. At the current price, however, sugar export is unviable. Hence, the government should announce incentives to encourage exports and lower the carryover stocks for the next season,” said an industry veteran.

Isma estimates production for the current season up till last Friday at 25.81 mt, nearly 50 per cent higher than the 17.55 mt produced by the same time last year. The country's total output was 20.3 mt for 2016-17.

After recovering to Rs 31.5-32 a kg in spot wholesale markets, the price is now Rs 28.5 a kg; mills says this means a loss of Rs 3-3.5 a kg (the price of cane to be paid by mills is set by state governments). With MIEQ, the mills might be able to export some quantity, if incentives are given. Absolutely also needed, says Isma, with Thailand aggressively pushing its sugar into the Asian market and Pakistan's government offering an export incentive of Rs 11 a kg. The result has been a sharp fall in world prices. Meanwhile, the mills have huge payment arrears to cane farmers. 

By the end of January, the total was estimated at Rs 140 billion, a rise of Rs 45 bn since December. If the trend  continues, total arrears to cane farmers are likely to jump to Rs 230 bn by the end of this month, a record.