Higher incentive of up to Rs.4,000 per tonne is under consideration for the current and upcoming sugar seasons, say reports
By Sai Nikesh D
The Indian sugar industry is hoping that the government will soon take a decision to re-introduce the export subsidy scheme for millers and also increase the incentives to offset the decline in international prices.
The Indian Sugar Mills Association (ISMA) said this week that unlike the general perception that all is well in sugarcane payments and exports, the sugar industry in India is struggling with high stocks and low prices ever since the government discontinued export subsidies in September 2014.
“The industry continues to eagerly wait for the Central Government’s announcement on continuation of incentive scheme on raw sugar production and exports thereof,” said ISMA in a statement. The Association added that it has become difficult for the mills to even pay the Fair & Remunerative Price (FRP) within the stipulated period as ex-mill sugar prices across the country are much below the cost of production.
“Export incentives will help improve liquidity with the industry and check the continuously falling ex-mill sugar prices, which in turn, should improve the industry’s cane price paying capacity,” it said.
High stocks and low prices had led to huge payment arrears to farmers last year, reaching a high of Rs.14,095 crore in May 31, 2014. To address the situation, the Indian government introduced an export subsidy of Rs.3,300 per tonne for June-July, 2014, and increased it to Rs.3,371 per tonne for August – September, 2014.
According to the Food Ministry, sugarcane arrears declined to Rs. 7,760 crore in September 4, 2014 and further down to Rs.3,567 crore in December 2014. Consequently, the government refrained from continuing the incentives after those were discontinued in September 2014.
However, production has gone up in 2014-15. According to ISMA, sugar production in the current 2014-15 sugar season until December 31, 2014, stood at around 74.61 lakh tonnes, which is up around 27% from around 58.63 lakh tonnes produced during the corresponding period in the previous year. Meanwhile, the global sugar prices have declined to below 15 cents/lb (around Rs.1,896 per quintal), making sugar exports from India unviable, said ISMA.
Industry sources say that sugar millers are awaiting the announcement of the government policy and crushing is likely to be low until it happens. As of December 2014, 481 sugar mills in India were under operation as against 485 sugar mills under operation in 2013 and 499 in 2012 y/y. In Tamil Nadu, only 15 mills were under operation compared to year-ago numbers of 35.
This article was published in The Dollar Business on January 9, 2015.