Rising rupee: Sugar exporters take 5% hit

The recent strengthening of the rupee against the dollar has dealt a blow to sugar companies who were looking to export the commodity after an export subsidy was announced by the government.

The rupee has risen by over five per cent in the last one month. As world prices of sugar are primarily dollar-based, the development will affect export realisation of sugar companies by 5 per cent.

"The government has announced around 10 per cent of the sugar value as export subsidy to aid exports. However, almost half of this benefit is getting eroded by the strengthening of rupee against the dollar," said Sanjay Tapriya, director (finance) of Simbhaoli Sugars.

"The export price of sugar has already come down from $470 to $320 a tonne in the last one year. With the appreciation of the rupee, realisations on sugar export have dropped further by 5 per cent," said M Manickam, managing director of Sakthi Sugars, which has exported 25,000 tonnes after the export ban on sugar was lifted in December.

"Strengthening of the currency is bad for commodity exports. The development will affect export realisations by a minimum 5 per cent for the companies who have not hedged their currency," said Narendra Murkumbi, managing director of Shree Renuka Sugars.

On March 24, the Union Cabinet decided to provide an export subsidy on freight (Rs 1,350 a tonne for coastal sugar mills and Rs 1,450 a tonne for others) to bail out the sugar industry that was faced with a glut.

The sugar industry is keen to export 1.5 to 2 million tonnes sugar to arrest the decline in domestic prices. In July 2006, the government banned sugar export for a period of approximately six months.

The sugar production estimate for the 2006-07 season (October-September) has been revised from 23 million tonnes to 26 million tonnes against a consumption of 19 million tonnes. In 2005-06, sugar production was 19.2 million tonnes.