Export push may not take off

NEW DELHI: Sugarcane farmers from Uttar Pradesh were among thousands of farmers prevented from entering Delhi on October 2. They have reason to be unhappy. According to a government statement last week, mills, many in Uttar Pradesh, owe farmers ₹12,988 crore. But the mills aren’t to blame. Surplus production and low prices have created a liquidity crisis in the sugar industry. The statement issued last week by the government was to detail a package cleared by the Cabinet Committee on Economic Affairs (CCEA) to provide relief to the sugar industry. This is a good move, but it may not work.

First, the details of the package. It has two components: assistance for internal transport to facilitate sugar exports worth ₹1,375 crore and a flat payment of ₹13.88/quintal of crushed sugar cane in the 2018-19 season worth ₹4,163 crore. The export push is aimed at resolving the glut in the industry. According to Indian Sugarmillsassociation’s(isma) estimates, production of sugar this year is expected to increase to 35.5 million tons from 31.5 million tons. The estimated domestic consumption of sugar was 25 million tones in 2017-18 according to ISMA.

The reason exports may not be the answer is because international sugar prices are a fraction of domestic prices, and sugarmills are unlikely to find the export option attractive even after the newly announced incentive. International Sugar Prices are at a ten year low according to data from the International Sugar Association. In Indian rupees the international price is just around ₹1,700-1800/ quintal. The price on the domestic National Commodity Exchange (NCDEX) is significantly higher at ₹3,100/quintal. (Chart 1)

In fact, the slump in international sugar prices is one of the causes of the prevailing excess supply in the sugar industry. Net exports of sugar have come down significantly in the last two years. (Chart 2)

Earlier this year, the government allocated mill-wise Minimum Indicative Export Quotas (MIEQ) of two million tons of sugar for export. Under MIEQ each sugar mill was mandated to export a stipulated quantity of sugar. The quota was fixed taking into account average production of mills achieved in the last two years and up to February of this marketing year.

According to ISMA’S Sanjay Banerjee, the domestic industry has not been able to clear event 30% of this target due to the extreme low prices prevailing in international markets. Given this context, the latest policy might not be very helpful in resolving the continuing crisis in the sugar industry.

And that, in turn, means farmers will continue to be angry.