Plans to forge ‘barter trade’ deals with interested countries
The food ministry is exploring various options, including making exports of certain amount of surplus sugar stocks mandatory from the next season and forging “barter trade” deals with interested nations through which India could supply sugar in exchange for imports of other farm items from them, to help reduce a glut in the domestic market.
The move came after Prime Minister Narendra Modi last week directed ministries concerned to look for ways to step up sugar exports and also make the proposed blending of ethanol — a cane by-product — with petrol at a 10:90 ratio a reality soon, both aimed at improving the ability of cash-starved mills to clear massive dues owed to farmers for cane purchases.
Sources told FE that although mills would incur heavy losses on export if it’s made mandatory as global prices were hovering around six-and-a-half-year lows, surplus stocks in the domestic market would drop significantly, driving up their realisations from domestic sales.
Currently, mills would incur losses of R1,000 per tonne more if they choose to export refined sugar instead of selling in the domestic market. As such, realisations from domestic sales are R10,000-13,000 lower than the cost of production, according to an industry source.
Stocks of sugar companies rose up to 17% on the BSE on Wednesday due to the fresh development. Dwarikesh Sugar witnessed a 16.73% gain in its share price, followed by Dalmia Bharat Sugar (13.56%), Simbhaoli Sugars (10.50%), Bajaj Hindusthan Sugar (7.57%) and Balrampur Chini Mills (6.99%).
The industry has been bleeding as sugar prices have crashed to seven-year lows, while the cane prices have been fixed at exorbitantly elevated levels by state governments like Uttar Pradesh and even the Centre. Since global prices have also plunged due to a glut in other producing nations, exports from India aren’t that attractive without a subsidy for the simple reason that Indian cane is the most expensive in the world. Consequently, mills and co-operatives across the country owed nearly R18,112 crore to farmers by the end of June for cane purchases.
Compounding mills’ worry, India will likely produce surplus sugar for a sixth straight year through the next marketing year starting October. According to a preliminary forecast by the Indian Sugar Mills Association (Isma), sugar output in the world’s second-largest producer is expected to touch 28 million tonne in 2015-16. The surplus output again in the next season would further worsen the situation unless exports improve. Already, the country’s sugar stocks at the end of this season in September is estimated to touch 10.20 million tonne, the highest in the last six sugar seasons.
Sources said the food ministry is also weighing the possibility of raising the cess on sugar production from the current R24 per quintal so that it could put to use the funds for purposes it deems fit for the uplift of the industry.