India’s sugar exports plunged by a half in the current marketing year ending Wednesday from a year before, despite a government subsidy on the outbound shipment of raw sugar.
The country’s sugar exports under the open general licence (OGL) are expected to have hit 11 lakh tonne in 2014-15, compared with 21.8 lakh tonne a year before, according to a preliminary estimate by the Indian Sugar Mills Association (ISMA). Of the total exports, raw sugar made up for 5.5 lakh tonne. This is only about a third of 1.4 million tonne for which the government had approved the export subsidy of R4,000 per ton for 2014-15.
A slide in global prices due to a glut in countries, including Brazil, erased India’s competitiveness in the export market, and an inordinate delay in the announcement of the continuation of the subsidy scheme through 2014-15 discouraged the production of raw sugar that is barely consumed in the country. As such, cane prices, fixed by states like Uttar Pradesh, are among the highest in the world, which drive up cost of domestic sugar production.
Given the low prices globally, the subsidy amount of R4,000 per ton proved grossly inadequate for raw sugar exports. The subsidy scheme was first approved by the government in February 2014 to help mills diversify their product base and trim a glut in refined sugar so that their ability to clear cane arrears improves. Although, the scheme was initially meant for two years, subject to a review by the government, the announcement was delayed by the food ministry by a crucial five months through 2014-15, squandering the opportunities for exports when domestic mills’ competitiveness was even higher in the global market.
According to provisional official estimates, sugar exports under the OGL touched 10.2 lakh ton up to August 30 in the marketing year that had started on October 1, 2014. Of these, raw sugar exports made up for 4.65 lakh tonne and white sugar the rest. Industry executives said roughly 80,000 tonne of raw sugar may have been exported in September but no worthwhile amount of white sugar is reported to have been shipped out this month.
Industry executives said while global raw sugar prices are ruling around R16,200 per ton, the cost of its production in Maharashtra is around Rs 29,000. Similarly, refined sugar in the international market is trading around Rs 21,000 per ton, compared with its cost of production of roughly Rs 31,000 per tonne in Maharashtra. The ex-factory prices of raw and refined sugar in the western state, however, were also ruling lower than the costs.
However, some mills say the food ministry’s latest directive to mandatorily export four million tonne of sugar in 2015-16 even at steeper losses would actually help the domestic industry. This is because mills say mandatory exports to the tune of 15% of production would improve domestic prices and help them recover the losses easily through higher domestic realisations.
The Indian Sugar Exim Corporation, meanwhile, would soon contract 100,000 tonne of the sweetener for exports during the next season.