Sugar industry MSME margins hit by flat product prices: CRISIL SME TRACKER

Recent developments in both domestic and world markets have impacted the Indian sugar industry,  in which micro, small, and medium enterprises (MSMEs) dominate. While prices of sugarcane (the key raw material) have increased, the increase in price of sugar has not been commensurate.

Globally, supply is expected to ease as output in Brazil and Thailand, both major producers, is likely to revive. Domestic sugar producers saw 14 per cent revenue growth in FY22, as a decrease in output from these countries after the sugar season (October-September) boosted demand for Indian produce and lifted its prices in world markets.

The export momentum continued in the first half of FY23. However, the government imposed a cap on exports at 11.2 million tonnes (MT) for the 2022 sugar season. 

For the current season (2023), the government has increased the fair and remunerative price for sugarcane by 5 per cent to Rs 305 per quintal for a recovery rate of 10.25 per cent.

As for exports, the cap for the current season has been set at 6 MT, owing to reduced domestic inventory. Since it will still be adequate for domestic consumption, we expect an increase in the export cap to 8.5 MT by the end of the first half of this sugar season.

With crushing underway for sugar season 2023, sugar prices are on the decline month on month. But, year on year, prices are expected to be up by 1-2 per cent with lower inventories.

The MSME segment only has standalone sugar mills and will face lower margins compared with non-SME counterparts, which have integrated mills, including power and distillery units.