INDIA: Mills and farmers continue to stress despite higher prices

Published: 02/14/2018, 12:52:37 PM

Woes of Indian Sugar Industry and farmers don't seem to have an end despite government measures like imposing import duty and limiting the release of sugar in the market by mills, according to India's Business Standard newspaper.
The measures did help to improve ex-mill prices or price realisation by mills by 5-7% but they were earlier selling sugar at 15 to 20% below the cost of production, which means losses have shrunk but sugarcane crushing business is still unviable.

Industry officials and analysts called for an SOS from the government to help improve cash flows of sugar mills. If these mills don't make money, farmers selling cane to them will not get paid. Indian Sugar Mills Association had projected 26.1 million tonnes of sugar production for season 2017/18 (October to September), of which 17 million tonnes of sugar has been produced (by 31 January) and February is considered a peak season for production.

Based on state advised price with higher recovery in some states like Uttar Pradesh, Haryana, Punjab, Uttarakhand, etc sugarcane dues payable to farmers could be as high as INR270 billion. Technically, if dues are not paid within two weeks they will be called arrears.

Sugar surplus in 2017/18 sugar year is estimated at over one million tonnes and Gaurav Dixit, associate director, CARE Ratings said, "there will be surplus sugar production, both in the current sugar season 2017/18 and also in the upcoming sugar season 2018/19. Hence, government's role becomes very important to ensure that interest of all the stakeholders are protected and that sector remains viable."

He says there is a need for incentivising exports of surplus sugar. Some sugar companies may sail through but not all. Gaurav said, "With the sugar prices expected to remain under pressure going ahead, the large integrated sugar mills will be in a better position to clear cane dues as most of such sugar mills have significantly reduced their debt levels resulting in low-interest outgo in the current year.

However, standalone sugar mills who are still significantly leveraged and are without any distillery or power plant may find it difficult to clear cane dues in a timely manner if the cane prices fall sharply." He is not the only one who recommends more government measures.

Abinash Verma, Director General Indian Sugar Mills Association said, "The main problem is the surplus sugar, which is going to come up next year. Can't say how big the surplus will be, but it will be good to start the next season with lowest possible Opening balance for which, India should try to export around 1 to 1.2 million tonnes in the next 6 months. ISMA is suggesting a surplus of over 1 million tonnes this year in 2017/18."

Verma estimates that exports of the surplus will give cash flows of around INR30 to 40 billion to the industry, help ensure ex-mill prices sustain at remunerative levels of 34-36 per kilo and start next season with minimum possible opening balance. Inventories with sugar mills at the end of January is estimates between 12.5 to 13 million tonnes though no formal estimates are available.

"If the escalating sugar inventories issue is not checked, we fear the cane price arrears could cross record levels seen 2-3 years back as early as March 2018, which could drag into the next season too when the surplus will be higher," Verma said.

According to an Industry observer, all India average cane price, including the SAP to be paid to the farmers in some states is INR303 per quintal, which increases the total cane price payable till January 31, 2018 to INR505 billion.

By March 31, dues payable to farmers is estimated to go up to about INR700 billion. Analysts said in the past whenever cane arrears went up due to scarcity or excess production government had taken measures to help mills to clear dues.

This season even after considering the recent marginal increase in ex-mills sugar price, they will be able to pay to farmers around INR500 billion. Ex mills sugar price need to go up to INR3,500-3600 per quintal to see mills pay farmers' dues. Allowing exports by removing export duty of 20% and providing further incentives.

At today's international price simply removing export duty will not make export unviable as at US$350 exporters from Maharashtra will lose INR9-10 per kilo of exports. Even traders representatives recently proposed that 1.5 million tonnes need to be exported.