Govt support crucial to achieve sugar export target, says ICRA

Support from the government will be crucial to achieve the targeted sugar exports as the current low global prices could render shipments unremunerative for the sugar mills, credit rating agency ICRA said in a statement on Thursday.

Sugar mills in the country are grappling with a significantly higher-than-anticipated domestic production in the current season, which not only led to a steep fall in ex-mill sugar prices, but also added to the mounting sugarcane arrears to farmers.

Even though the Government allowed the mills to export 2 million tonnes (mt) of sugar under the Minimum Indicative Export Quota (MIEQ) scheme in sugar year 2017-18, that ends in September this year, the surplus is expected to be much higher. Under MIEQ scheme, the export quota for the sugar mills is fixed on the basis of their average production in the last two years and up to February of this marketing year. Domestic sugar production in the current sugar season is set to cross 30 mt, an increase of around 45-50 per cent, from 20.3 mt in the previous season. This has been driven principally by a recovery in production in Maharashtra, Karnataka and Uttar Pradesh.

MIEQ scheme

“The successful implementation of the MIEQ scheme depends on the export incentives the State or Central Government would provide as in the previous years such as SY2015 (export subsidy of ₹4/kg) and SY2016 (production subsidy of ₹4.50/kg), given the prevailing low international sugar prices,” said Sabyasachi Majumdar, Senior Vice-President and Group Head, ICRA Ratings.

In the current scenario, the international sugar prices are hovering at around $350/tonne, which adjusted for transportation costs, and sugar exports would fetch around ₹18,000-19,000/tonne, about ₹9,000 –10,000 per tonne lower compared to the prevailing domestic sugar prices. As a result, the mills have not started exporting sugar as they would have to incur upfront losses, he said.

The Maharashtra govermment plans to provide ₹ 5/kg subsidy to export the produce, Majumdar said. Even after meeting the target of exporting 2 million mt, the domestic industry is likely to have around 1.5–2 mt of excess stock, than the normal stock of 5.5–6 mt, for the next season. “While the sugar prices are likely to improve with the successful implementation of MIEQ, any significant increase from the current levels can be ruled out given the continued over-supply scenario in the domestic market,” Majumdar said.