Slowdown in sugar exports a major headache for inventory-saddled industry

While a stronger rupee and lower crude price have hardened the overseas market, the decline in sugar prices from the peak has made exporting the commodity economically unviable

There has been a marginal increase in overseas shipments of sugar in December and all indicators suggest market scenario is not favourable for exports, with no improvement seen in the near future. This is coming at a time when there is a pressure on mills to export more to reduce domestic inventories.

Total sugar dispatches till January 5 from the mills for exports stood at 726,000 tonnes, of which 383,000 tonnes were actually shipped, while the rest is still in the pipeline, according to data sources from Dr Amin Controllers, a US-based supervisory and collateral agency that tracks several commodities. The exports so far are way below the 5-million-tonne export target for the current sugar season (October 2018 to September 2019) set by the Central government while announcing incentives.

The Maharashtra State Co-operative Bank has cleared one export hurdle for co-operative sugar mills and has decided to give a bridge loan to mills in the state against export subsidy receivables from the Centre. This will enable banks to release a large amount of sugar stocks mortgaged by around 100 mills in the state for export.

However, actual export will depend upon market conditions and the extent of loss in exports that the mills can sustain. Mills can recover Rs 29 per kg from domestic sale, which is fixed with maximum sale quota being announced monthly. Realisation at the current exchange rate and global price is Rs 18-19. Mills still incur a loss after counting subsidy.

Praful Vithlani, Chairman, All India Sugar Trade Association, says, “The export quota is 15 per cent of total production and mills should look at reducing inventories at whatever price they can export to protect realisations from the remaining 85 per cent sugar.” He explains that there will always be a limit for the government to give subsidy and hence some way has to be found.

The market situation for export is not conducive for three reasons. First, the Indian rupee appreciated by as much as 4 per cent against the dollar after the government announced the export target. The second reason is the 30 per cent drop in crude prices, which has sucked out the economics of diverting more cane for ethanol for blending with oil. Thirdly, even sugar prices are down 15-20 per cent from the peak, making exports unviable.

As is all this wasn't enough, last Monday the government amended the condition for buffer stock and said for reimbursement of subsidy for March and June quarters, mills should have fully complied with government orders/directives for season 18-19. This means if mills fail to export the given quota, they will not get buffer subsidy.