Weak Brazilian real affects sugar exports

Brazilian real's weakness and lower global sugar prices have badly affected Indian exports

Depreciation in the Brazilian real has hit global sugar prices and India is not an exception. The sugar sector here is already going through a tough time. Plus, the sharp drop in Brazilian real has nearly wiped out the benefits Indian mills were hoping to reap from export subsidy.

"Right now, macro economic factors are affecting sugar more than the fundamentals. Depreciation in the real has hit global prices. The rupee hasn't fallen in the same proposition. The prices of other commodities, too, have fallen globally. This might have a negative impact on sugar prices," said Yatin Wadhwana, managing director, Sucden India.

According to experts, the real's weakness and lower global sugar prices have badly affected Indian export. India is the second-largest producer of sugar after Brazil. However, India is weak in export. In February, the Centre decided to give mills a subsidy of Rs 4,000 a tonne for exports of up to 1.4 million tonnes (mt), to help reduce stockpiles after five years of surplus output. However, dealers feel exports would be less than half a million tonne, as mills are not eager to produce raw sugar due to the drop in prices. Indian raw sugar prices have fallen to $330-$340 a tonne, down from $465 a tonne a few weeks ago.

Losses have been a feature of the Indian sugar sector for several quarters, with a continuous rise in cane prices by both the Centre and states keeping production costs elevated. The ex-factory sugar realisation has slipped to a four-year low. In the past month, the ex-factory price has fallen Rs 1.25-1.5 a kg. Since the start of the current crushing season in October 2014, ex-mill prices have declined by Rs 5-6 a kg. Mills are slated to officially stop crushing from the first week of March. However, some might stop before that owing to financial stress.

Most sugar mills are not able to pay the Centre-determined fair and remunerative price (FRP) of Rs 220 a quintal.

"In the current scenario, it has become difficult for us to pay even the Centre determined FRP of Rs 220 a quintal, leave alone the Uttar Pradesh-fixed state advised price of Rs 280 a quintal. There will be no change in FRP till 2017. Also, it is a mismatch between cane price paid and actual price realisation of sugar," said a private sugar manufacturer.

In Maharashtra, the cooperative sugar mills faced a shortfall of Rs 800 crore to pay the FRP to farmers. The total unsold stock for this year might rise of two mt. India is set to produce surplus sugar for the fifth straight year that began in October. Bumper production in the past bumped up supplies, hammered local prices, and hit mills' financials.

The Indian Sugar Mills Association has forecast this year's output at 26 mt against 24.4 mt in the previous year.