Sugar sales have plummeted by nearly 1 million tonnes since March 2020 after demand took a hit as Covid lockdown and subsequent extension of restrictions lowered consumption of many sweetened products including confectionery, soft drinks, chocolates, and sweetmeats among others.
“Even as businesses pick up, it is unclear how quickly demand will recover with subdued sugar consumption due to reduced out-of-home consumption and given the fall in incomes and employment,” says Mukesh Kuvediya, secretary-general, Bombay Sugar Merchants Association (BSMA).
Meanwhile, the production of sugar has risen substantially by 20 percent in the first five months of the season since September 2020.
“The western part of India, particularly Maharashtra and Karnataka, have seen excess production of sugar over the last year. Maharashtra alone is processing more than 10 million tonnes of sugar and Karnataka about 4.5 million tonnes,” says Atul Chaturvedi, executive chairman of Renuka Sugar, one of the largest raw sugar producer in India.
Second only to Brazil, sugar production in India, is the second-largest in the world. The production is estimated to be 30.2 million tonnes in the on going 2020-21 marketing year (October-September), higher than the annual demand of 26 million tonne.
Even with a strong demand rebound in 2021, the sugar balance is still running at production that is much higher than consumption. This has been adding pressure on price realisation for manufacturers and farmers.
Associations ask for governmental intervention
“Industry bodies have been asking for several subsidies from the government including transport subsidy. In Maharashtra, associations are also urging the state government that payment to farmers be spread over three installments so that the industry which is struggling with excess stock doesn’t have to incur high payments immediately,” says Chaturvedi.
The National Federation of Cooperative Sugar Factories (NFCSF) has also recently demanded that the government give more time to clear the unsold sugar quota as sales have been hit due to the pandemic.
Mills are also finding it difficult to sell sugar at the government-fixed rate of Rs 31 per kg. They are facing a fund crisis and not able to make cane payment to growers on time.
Sugar mills have been lobbying with the government to hike the minimum support price (MSP) of sugar to Rs 34.50 per kg to help them clear payment arrears.
Industry experts say that the Fair and Remunerative Price (FRP), a benchmark rate below which mills are not allowed to buy cane, has already been hiked by Rs 10 per quintal this year. This is putting a lot of pressure on the mill owner’s fund availability.
The Indian Sugar Mills Association (ISMA) also noted that by end of February, 502 mills across the country had produced almost 234 lakh tonnes of sugar, in comparison to 195 lakh tonnes produced by 453 mills during the same period last year.
The prices are almost down by Rs 80-100 per quintal than what was prevailing a year back during the corresponding period.
“This is not a good sign as low prices, much below the cost of production for the last several months, have adversely affected the liquidity of mills and their ability to pay the FRP to cane farmers. It is feared that if such a situation persists then cane price arrears will jump very fast to uncomfortable levels,” said ISMA.
NFCSF has also urged the government to allocate a lesser sugar quota for sale in the next month. For April, the government has fixed a record sugar sale quota of 22 lakh tonne. This quota is 4 lakh tonne more than the average of 18 lakh tonnes announced in the last five years.
The government fixes sugar sale quota every month based on production figures of mills across the country so that all small and big mills can sell sugar.
After a review of the quotas released in the last six months, sugar sales and lapsed quotas, about 50 per cent of the quota of cooperative sugar mills has remained unsold, NFCSF said in a statement.
Only half of the quotas received could be sold and that too at Rs 31 per kg. But even at this rate, cooperative sugar mills are finding it difficult to sell, it observed.
As a result of all this, NFCSF said the cooperative sugar mills have been under stress as their funds have been blocked in the sugar stock and the interest burden on that is rising daily. This has led to stagnation of farmers’ cane bills, staff salaries, and clearing other over-due payments.