Denied of government policy support and a victim of low prices, the Indian sugar mill industry finds itself in the pits, says industry official Om Prakash Dhanuka. He points out “nothing will describe it more tellingly than leading sugar groups losing appetite to grow capacity by acquisition of factories or building greenfield mills. Unlike other industries and services sector, sugar has failed to attract any foreign investment even though the government allows majority ownership of sugar factories by offshore corporate bodies.”
Both Bajaj Hindustan, Asia’s largest sugar producer and once the blue chip Balrampur Chini rapidly grew cane crushing capacity in the past using both brownfield and greenfield routes hoping that at some point New Delhi and governments in cane growing states would come up with a basket of policies rewarding 50 million growers and over 500 operating factories. The self-proclaimed reforms-oriented government headed by Narendra Modi offered some policy support in June by way of raising import duty on sugar, restoring export incentive and offering interest free loans to the beleaguered industry to clear cane dues. But the industry’s hope that New Delhi will sanction linkage between sugar and cane prices and not let the cane growing states to go on arbitrarily decide cane prices remains unfulfilled, says Dhanuka.
A committee headed by eminent economist and former governor of the Reserve Bank of India C. Rangarajan has said salvation of the steadily deteriorating industry lies in a formula under which revenue from sale of sugar and its by-products like ethanol and power is shared between cane growers and factories in 75:25 ratio. What, however, calls for pondering is at current ex-factory prices of sugar, the recommended price sharing formula will leave both constituents high and dry. This then raises the issue of government intervention by way of compensating farmers to the extent that price sharing in difficult years doesn’t cover cane growing costs plus fair margin for growers. In this context, the Thai model of administering price sharing calls for New Delhi’s consideration. Thailand is incidentally the world’s second-largest exporter of sugar.
As if bumper sugar production four years in a row resulting in 2014/15 season opening with overflowing stocks of 7.5mt was not enough of a bearish influence, India will be the only exception among major producing countries to lift output from last year’s 24.3mt to 25.5mt or more this time, according to Dhanuka. Intense liquidity crunch resulting from factories not able to recover cane cost from sugar sale is forcing them to sell forward to international traders at “cheaper rates... Exports haven’t yet started. It’s an unviable situation,” says Indian Sugar Mills Association president A.Vellayan. “No wonder as the government is taking an unconscionably long time seeking clarity on sugar stocks and production outlook in the current season, export incentive has remained suspended since October. Overselling by mills in the domestic market and no export shipments happening in the absence of incentive have caused sugar price collapse without the bottom still to be found” says Dhanuka.
USDA’s Beijing bureau says Chinese sugar production will be down by about 1mt to 13.3mt. Reasons cited for production setback are lower sugar prices causing “returns on cane to fall below competing crops like fruits and cassava and damages earlier caused to cane plantings by “less-than-ideal weather and some typhoon damage” in China’s south eastern growing centres. Interestingly even while Chinese sugar use is forecast to rise 4%, the country, according to USDA, may end up importing 3.8mt down 300,000 tonnes year-on-year and the lowest since 2010/11. China has enormous stocks of sugar and by drawing from the inventory, it is going to keep imports in check. The country has decided to maintain the more than a decade-old annual low-tariff sugar import quota at 1.95mt in the current year. Chinese factories are lobbying the government hard for raising the out-of-quota tariff to 60% from the current 50%.