MSME sector may see lower margins due to stable sugar prices and hike in sugarcane cost

Ease of Doing Business for MSMEs: The recent trends in the sugar industry in domestic and international markets has impacted the Indian sugar industry, which is largely dominated by the MSME sector, said the CRISIL SME Tracker in the Business Standard. The price of sugarcane in India has increased but the sugar price has not risen in proportion to the raw material. 

In the financial year 2021-2022, domestic sugar producers observed a 14 per cent rise in the revenue which was mainly due to the reduction in the output of other sugar producing-nations during October-September (sugar season). This led to a boost in the global demand for Indian produce and increased its price in the global markets. 

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Major global producers of sugar, Brazil and Thailand are likely to revive and produce output as expected. The export momentum from India however continued in the first half of the current fiscal. 

Importantly, the government imposed a cap on exports at 11.2 million tonnes (MT) for the 2022 sugar season. For the 2023 season, the government has increase the fair price for sugarcane by 5 per cent to Rs 305 per quintal for a recovery rate of 10.25 per cent, the report added. 

The cap for exports for this season has been set at 6 MT, owing to reduced domestic inventory. An increase in the export cap to 8.5 MT by the end of the first half of this sugar season is expected as the rest will be adequate for domestic consumption.

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Sugar prices are decreasing month on month as the production process of sugar making is going on for this season, the report said. On the other hand, year-on-year, prices are expected to increase by 1-2 per cent with considerably low inventories.

It is important to note that the MSME sector will see lower margins in comparison with non-SME counterparts, as they operate standalone sugar mills whereas the large companies have integrated mills, including power and distillery units.