Sugar production estimates likely to be cut for current year

Market observers are worried over falling yields of sugarcane crop due to weather abnormalities and a resultant fall in sugar production

Despite several policy measures in the past few months, sugar companies are still in the doldrums, as most of these have not helped. Although the sugar price has increased about 10 per cent in recent weeks, this is largely on account of reports of cane crop damage and sentimental improvement following a plan to barter for import of pulses or edible oils.

Since July-end, prices have risen 10-12 per cent across regions. In the National Commodity and Derivatives Exchange, Kolhapur delivery sugar M30 is quoting around Rs 25.5 per kg. However, the industry is still making losses on sales.

Observers are worried about the falling yields of cane due to weather abnormalities and a resultant fall in sugar production. In drought-hit areas of Maharashtra and Karnataka, cane productivity is likely to be even lower.

Indian Sugar Mills’ Association (Isma) is in the process of reviewing canesowing areas based on satellite images and is expected to release revised sugar production estimates in a couple of weeks. In July, it had said sugar production this season could be 28 million tonnes (mt), but that could be revised downwards if the crop images show damage.

Edelweiss Agri Commodities Research has already cut its estimates, pegging 2015-16 sugar production a million tonnes lower at 27.3 mt. Production in Maharashtra, Uttar Pradesh and Karnataka is pegged at 9.6 mt, 7.19 mt and 4.9 mt, respectively, it said. Other experts take an even bleaker view, suggesting production might fall as low as 26.5 mt.

However, prices are expected to “remain bearish because of excess supply in domestic market and globally as well”, said D P Jhawar, president and head of commodities business at Edelweiss.

The Centre had said last month that it was considering exporting four mt sugar under barter arrangement. This has had a sentimental impact, as desperate sellers had been offloading their stock at any price. With the new season to begin in the next one or two months, distress selling for making payments to farmers has also halted. As a result, the prices have seen some spurt but “selling sugar under barter to countries from where India imports pulses or palm oil is not easy and unlikely to happen soon”, as one industry observer said.

Similarly, a few months ago, the government had increased import duty to 40 per cent and allowed a subsidy for exporting raw sugar. However, the measures outlived their utility as “sugar prices have fallen so much in India that imports were not viable even at lower duty; export subsidy was announced when crushing season was ending but there was not enough stock of raw sugar,” said an industry veteran. “Hardly four million tonnes could have been exported under subsidy.”

The government also announced Rs 6,000 crore assistance to mills for paying farmers but found few takers. The scheme suggests disbursal should be completed by the end of September but till last week, sources said only Rs 100 crore was disbursed. “Industry has applied for assistance of Rs 3,500 crore and a large sugar company’s applications for Rs 1,000 crore assistance was rejected,” said a source.

Oil marketing companies have been allowed to blend ethanol with petrol, but the sugar sector will need at least two years to reach production capacity to meet this demand. Ethanol is a by-product of sugarcane processing and, hence, is not fully prepared to reap the benefit of ethanol supply. However, sugar mills are making money off by-products as sugar sales are a loss-making proposition.

The key to improving health of sugar mills in the country, says Abinash Verma, director-general of Isma, lies in “linking sugarcane prices with end-product prices and setting up sugar price stabilisation fund as proposed by the Commission for Agriculture Costs and Prices.”