ICRA says maintains stable year end outlook for sugar sector in India

The estimated sugar production in India for sugar year (SY) 2019 is around 31-31.5 million tonnes, according to ratings agency ICRA.

This estimate is lower as against the earlier estimate of 35 million tonnes given in July 2018. Despite the expected decline in the sugar production, the surplus scenario is likely to prevail and the closing stock for the season are estimated at around 11.3-12.3 million tonnes.

The oversupply situation is likely to exert pressure on the margins in that year. However, the downward revision in the production estimate and the government support measures are likely to provide some respite for this season.

“The production is likely to be higher by at least 5.5 million tonnes than the estimated consumption for SY2019. Even after assuming 4 -5 million tonnes of sugar exports in SY2019 on the back of the increase in the production subsidy, the closing stocks would still continue to remain high at around 11.3 – 12.3 million tonnes, given the high opening stocks of around 10.5 million tonnes from the previous season,” said Sabyasachi Majumdar, Group Head – Corporate Ratings, ICRA.

The Cabinet Committee on Economic Affairs (CCEA) has fixed the sugar FRP (Fair Retail Price) at Rs. 275/quintal for SY2019, an increase by Rs. 20/quintal, compared to the previous year. However, the cane price is linked to a basic recovery rate of 10.0%, as against 9.5% the previous year, resulting in an effective increase in the FRP by 2.5% Y-o-Y in SY2019. The UP government has announced SAP for sugarcane for SY2019 at Rs. 315/quintal for normal variety, same as in SY2018.

The Government of India has taken various measures in support of the industry. In September 2018, the GoI has notified a cane production subsidy of Rs. 138.8/tonne (as against Rs. 55/tonne last year), which would be paid directly to farmers as part of the cane costs during SY2019 against the 5 million tonnes of sugar exports under Minimum Indicative Export Quota (MIEQ).

This apart, the transport subsidy (for the mills not located in coastal states) of Rs. 3/kg is also provided on sugar exported. Given the prevailing international prices, the companies are likely to make losses on sugar exports. The direct benefit from the production and transport subsidy would amount to around Rs. 1.50-1.65/kg of sugar produced (assuming 14% of sugar production is exported). Further, the mills would also save on the interest and storage costs to the extent of sugar exported.

Earlier in June 2018, the CCEA approved the creation of 3 million tonnes of buffer stock, fixed a minimum selling price of Rs. 29/kg and Rs. 1,300-crore interest subvention to be provided on the loans for creating new ethanol capacity or expanding an existing one.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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