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Mills may export only 1 mt of raw sugar this season despite subsidy

Exports of 2-2.5 mt would have resulted in a cash flow of more than Rs 6,000 crore this season…

Mills will manage to export only 1 million tonne (mt) of raw sugar this marketing year through September out of the 4 mt for which the government has allowed subsidy of R3,333 per ton-ne, senior industry executives and millers said on Thursday.

A delay in the decision on subsidy by almost two months since a panel of ministers led by agriculture minister Sharad Pawar first suggested the doleout in early December has affected mills’ ability to produce more this season, Indian Sugar Mills Association director-general Abinash Verma said. This is because the sweetener variant is produced mainly for exports, and in the absence of a subsidy, export from the country wasn’t viable in a market already flooded with Brazilian supplies.

“Since the window to produce raw sugar for exports this season is roughly two months (cane crushing is mostly over by April end), mills won’t be able to produce more than 1-1.5 mt. Had the decision been taken in December itself, the industry would have been able to ship out 2-2.5 mt,? Verma said.

Exports of 2-2.5 mt would have resulted in a cash flow of more than R6,000 crore this season, at today’s price, for the industry which is facing a liquidity crunch, compared with an expected R2,500 crore if they st-art producing now for exports.

However, Verma said mills will be able to produce more in the next marketing year and export the entire 4 mt before the deadline for offering subsidy expires on September 30, 2015.

The cabinet committee on economic affairs (CCEA) on Wednesday agreed on the qua-ntum of subsidy? aimed at encouraging mills to diversify their product basket and cut a current glut in refined sugar to improve realisation?after deferring a decision thrice amid differences between the ministries of agriculture and food.

Sources told FE the subsidy of R3,333 per tonne is based on the expected export price realisation up to September, factoring in futures prices of the raw sweetener and the current value of the rupee, which is estimated at just under 62.50. The food ministry will review the quantum of subsidy after two months, they added.

If the current doleout level is maintained, the government has to offer a subsidy of R1,333.20 crore by September 2015. The subsidy will be provided from the Sugar Development Fund under the food ministry ?The government?s decision to give a subsidy of R3.33 per kg on export of 4 mt of raw sugar over the next two years will reverse the trend of falling domestic sugar prices and provide respite to manufacturers,” said CRISIL Research.

An expected 1.5 mt decline in sugar production in the current season (October-September) due to lower cane output is also likely to support sugar prices, CRISIL added.

The CCEA decision lifted up stocks of key sugar companies on Thursday, with the share of Balrampur Chini Mills rising as much as 5.4% to R42, vastly outperforming a 1.25% drop in the Sensex, while that of biggest producer Bajaj Hindusthan rose 1.57% to R12.93. Largest refiner Shree Renuka Sugars, which will benefit from the decision, saw its share price rising by 2.54% to R20.15.

However, millers say despite the subsidy, they will incur some losses in raw sugar exports, as the cost of production is higher due to elevated cane prices. However, raw sugar can be shipped out as domestic prices are still lower than the export realisation if the subsidy is factored in. Raw sugar is selling at R21,500 per tonne at the millgate in Maharashtra, Gujarat and north-Karnataka, compared with the cost of production of R26,500 per tonne.

The government’s move to subsidise raw sugar exports was part of a series of recommendations by the Pawar-led panel last month to bail out the cash-starved sugar industry and hasten the process of clearing cane arrears.

According to a Crisil report, an expected decline in sugar production by 1.5 mt due to lower cane output in the current season will prop up refined sugar prices. Millgate prices of refined sugar are expected to go up by R2-3 per kg by September from the current level of R26 per kg in Maharashtra.

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First published on: 14-02-2014 at 05:27 IST
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