In a significant turnaround in the fortunes of sugar mills, the sweetener output is estimated to decline by 4% next crushing season (2013-14) on lower availability of cane especially in the drought-prone regions in Maharashtra.
The monsoon not only started with a month of delay in 2012 sowing season but also the quantum of rainfalls was very minimal resulting into inadequate water availability for planting and crop management thereupon. As a consequence, 16 districts including major sugarcane producing zones like Marathwada are affected badly due to water shortage. Sugarcane, a mass water consuming crop, acreage in these regions was affected with most of area remained vacant while the sown crop dried due to the lack of water.
Lower avalability of sugarcane is likely to push prices of the sweetener up in the market place.
Over and above that the government recently made a move to partially decontrol sugar, the only sector remaining under its control. The move, freeing sugar from levy mechanism, is likely to add upto Rs 1 per kg sold in the market, that would push millers profit higher.
According to a senior industry official, “Overall sugarcane availability in Maharashtra is set to decline by 10-15% for crushing season 2013-14 as both 12 – and 18-month crop was not sown adequately in the monsoon season 2012. This will also reduce proportionate sugar output in the state and the country.”
For the crushing season 2012-13, total output in Maharashtra is estimated between 7.9 - 8 million tonnes. Maharashtra State Federation of Co-operative Sugar Factories (Sugar Federation) reported the sweetener output at 7.8 million tonnes with hardly any quantity of cane left for crushing. Additionally, a quantity of one million tonnes of sugar is expected from the remaining cane in the state.
Next season, however, total sugar output is forecast to remain lower in the range between 0.8 - 1.2 million tonnes. With this, however, Maharashtra may lose the status of India’s largest sugar producing state, running behind Uttar Pradesh where sugar output is set to remain rangebound at 6.8-7 million tonnes in 2012-13.
This is set to translate into India’s total sugar output between 23-24 million tonnes during 2013-14 crushing season, lower from 24.6 million tonnes estimated by the apex trade body the Indian Sugar Mills Association (ISMA).
“Certainly, sowing in a few districts has been impacted due to drought in 2012 monsoon season. Its impact on overall sugar output is yet to be assessed though,” said Abinash Verma, Director General, ISMA.
A report by the rating agency Care shows that the recent de-control measure by the government in this sugar sector may benefit the entire industry going forward.
Taking a step to de-regularize the sector, the government has now decided to abolish the levy quota mechanism and dismantle release mechanism as well. The removal of levy quota will provide freedom to the sugar mills to sell their entire sugar output in the open market. Under the levy mechanism, the sugar industry was compelled to sell 10% of the total sugar production to the government for distribution through public distribution system (PDS) at a subsidised price fixed by the government.
The levy price fixed by the government was well below the market price and the cost of sugar production as well. In crushing season 2011-12, levy price was about Rs 19 per kg while the average market price was about Rs 31 per kg. Sugar industry had to incur a loss of Rs 6 per kg (below cost of production of about Rs 25 per kg) on sugar sold through levy quota in the last sugar season.
Considering a difference of approx Rs 10 between the average open market price of sugar and the levy price, the sugar mills are expected to gain an additional realization of Re.1 per kg of sugar sold. However, with the removal of levy quota mechanism, the state government will have to procure sugar from the open market for distribution through the PDS, thus increasing subsidy burden by approx Rs 3,000 crore.
Sugar mills were suffering a loss due to this levy mechanism and frequent market intervention by the government through extra release. Now, the government’s de-control measure is set to help the industry during 2013 sowing season for yielding profit in 2014-15 crushing season.
