Sugar Industry Faces a Glut

Sugar Industry

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Sugar Industry

Different kinds of Sugar
Different kinds of Sugar | Source

Sugar Industry in the World

Higher recovery helps

In October-November, sugar output in India was up by 17% to 2.16 million tonnes as against 1.84 million tonnes in the corresponding period of the previous year. Sugar recovery has also increased by 0.5% over the previous year. Sugar industry looks at India because India is the second largest sugar producing country in the world. India is the number one sugar consumer in the world. The sugar season in India runs from October to September. Crushing of sugar has started late this season including in Maharashtra, the sugar bowel of India. But higher recovery of 9.66% has been reported by sugar mills in Maharashtra compared to 9.19% recovery in the corresponding period of the previous year. Sugar prices have declined at the global level by nearly 30% compared to last year. A better recovery by sugar mills will offset their loss because of 5% less cane production due to less rainfall this season. There are totally 162 sugar mills in Maharashtra. This includes 115 cooperative and 47 private mills. The recovery this time is higher because of less rainfall towards the end of the sugar season.

Crushing in UP

In Uttar Pradesh State, crushing has started early and the sugar production is more than last year’s. But the recovery rate is less by ½%. UP has reported a recovery rate of 8.1% as against the normal recovery rate of 8.7%. In UP, sugar production has nearly trebled in the first two months to 5.30 lakh tonnes from 1.83 lakh tonnes in the corresponding period of the previous year. The UP government forced early crushing of sugar. 96 factories followed suit.

Exports of one million tonnes of sugar allowed

The government of India has notified the export of one million tonnes of sugar in 2011-12 seasons. India’s sugar production for 2011-12 is estimated at 25-26 million tonnes. Demand for sugar in India is estimated at 22 million tonnes. The surplus sugar can be exported in phases. Sugar prices have come under heavy pressure following oversupply. Demand is low and the prices have declined in wholesale markets in India. In New York, raw sugar futures are ruling at a five month’s low. Strong dollar is putting pressure on the sugar price in New York. For the first time in three years, supply is going to exceed demand in the global sugar markets and the price is bound to decline.

Import will keep the sugar price stable

Brazil’s production this season is put at roughly 490 million tonnes. In the next season in 2012-13, it is expected to shoot up to 522 million tonnes. Indian government’s decision to allow export of one million tonne of sugar will not benefit the producers as international price will be ruling low. The share prices of Indian sugar companies like Bajaj Hindustan, Balrampur Chini, Shree Renuka Sugars, Oudh Mills and other companies will decline. In the meanwhile, the finance ministry in government of India has extended the facility of zero duty import of sugar till March 2012. With a price difference of around Rs.1.75 between Indian produced sugar and imported sugar, the domestic sugar producers cannot raise the price of sugar. Normally the import duty on sugar is 60%. During the month of December, the government of India has allotted 19.07 lakh tonnes of sugar for open market sale. Agriculture ministry has estimated sugar production in India at around 255 million tonnes whereas food ministry has estimated it at 246 million tonnes.

Yield will improve drastically

Maharashtra State government has urged the Maharashtra State Cooperative Bank to provide higher loans to sugar mills. The State government has also conceded to Raju Shetty’s demand for higher prices to sugar cane growers. Tamil Nadu government has expressed against levying VAT on sugar. The Tamil Nadu government has allotted Rs.12.93 crore for sustainable sugarcane initiative. Sugar price is ruling at Rs.2967 per quintal for delivery in January 2012 in NCDEX. Tamil Nadu Agriculture University has developed a sugarcane booster, which is a nutrient in solution form. It helps to increase a range of crops including sugarcane. In the earlier system, farmers used several tonnes of sugarcane as seeds. In the new system, a single bud is clipped off from the plant, raised in a nursery as a sapling and then transplanted in the field. This will ensure survival of sugarcane in the field. Tamil Nadu has recorded a yield of 105 tonnes per hectare. The new system will improve this yield upto 180 tonnes per hectare. Sugar mills pay the farmers Rs.2000 per tonne. The increase in yield will increase the income of the farmers.

India expected to export more sugar

International Sugar Organisation (ISO) expects India to export more sugar in 2011-12 seasons. In theory, India can export its 4 million tonnes of surplus. The government has already given consent to export one million tonne of sugar. The government may yield and allow another one million tonne soon. It will decide later about the remaining quantity of sugar to be exported. Sugar price is a sensitive item in India that can pull down a government. No government will take a risk by allowing sugar price to rise. In 2010-11, global production of sugar was at 165.18 million tonnes, consumption was at 163.98 million tonnes, surplus was at 1.19 million tonnes, import demand was at 51.65 million tonnes, export availability was at 51.74 million tonnes and end stocks were at 57.14 million tonnes. In 2011-12, global production is estimated at 172.18 million tonnes, consumption at 167.71 million tonnes, surplus at 4.46 million tonnes, import demand at 48.08 million tonnes, export availability at 52.08 million tonnes and end stocks at 57.60 million tonnes. ISO’s forecast of India’s output in 2011-12 is 25.8 million tonnes, which is 7.5% higher than 24 million tonnes in the corresponding period of the previous year. Last year, India exported 2.6 million tonnes. Indian surplus is estimated at 9.8 million tonnes in 2011-12 seasons.

Sugar mills demand decontrol of sugar industry

ISO has estimated that the Brazilian production this season will be slightly less than last year’s. However, ISO has estimated that production in countries like Thailand, India, European Union and Australia will increase when compared to last year. India’s sugar export in 2005-06 was at 11.07 lakh tonnes, in 2006-07 at 17.28 lakh tonnes, in 2007-08 at 49.56 lakh tonnes, 2008-09 at 1.65 lakh tonnes, in 2009-10 at Rs.2.35 lakh tonnes and in 2010-11 at 26 lakh tonnes. Food ministry has asked sugar industry in India not to inflate the sugar estimate. Farmers and industry are viewing each other as enemies. This helps politicians also in their divide and rule game. UP sugar mills have decided to move court over sugarcane price fixed by the government. Mill owners say that their working capital will be eroded if they pay Rs.240 per quintal. Sugar mills in South India are demanding decontrol to free the sugar industry from excessive State control. Sugar sector is the only sector that has not been benefitted by the liberalisation in the economy set in 1991. Sugar mills are also facing the prospects of lower capacity utilization. UP State government raised the cane price by around 20% in an election year to woo the votes of the farmers. Sugar mills have been burdened because of this.

Restrictions on selling rectified spirit outside the State

Sugarcane production in India has gone up from 526 million tonnes to 780 million tonnes. Area of sugarcane cultivation has also gone up from five million hectares to seven million hectares. But it has also made sugar traders to turn bearish because of rising glut. Supply is likely to outpace demand for the first time in four years in India. India’s sugar production is enough to feed its huge population, but it is keeping imports as an option in order to thwart traders indulging in price increase. Tamil Nadu sugar mills are burdened with mounting power dues and rising alcohol stocks. TNEB owes more than Rs.300 crore to the sugar mills. TNEB is cash strapped and is in sick bed. State government has imposed restrictions on selling rectified spirit by sugar mills outside the State.

Confectioneries and soft drinks consume more sugar

Households consume only around one third of the total production of sugar in India. The remaining consumption is by soft drinks firms and confectioneries. Sugar mills body is asking the government to finalise ethanol pricing policy. Sugar mills are not very keen on selling ethyl alcohol to oil companies. They have bid only for 60% of one billion litre tender for fuel blending as ethyl alcohol prices are soaring this year. There has been reports that Pakistan’s sugar output has been hit to the extent of 4.2 million tonnes due to flood. It may import some quantity from India as it is going to grant MFN status to India soon. Decline of sugar price in India is good in one way as it will increase demand.

Second half will witness more sale of sugar

Second half of the financial year is always the season for more sugar consumption in India. This is the season for festivals like Durga Puja, Diwali, Ramzaan, Christmas, New Year and Pongal. Sugar mills witness brisk sales during this time. The sugar industry is crying for deregulation of the 10% levy quota fixed for the sugar mills. The government is resisting because of vote bank politics.

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