It’s more than a week since the central government, burdened with an overdose of sugar production, allowed sugar mills to export up to 2 million tonnes of sugar till September 2018 under the Duty-Free Import Authorisation (DFIA) and Minimum Indicative Export Quota (MIEQ) in order to flush some sugar out of the country. But not many mills in Uttar Pradesh, the country’s largest sugar producing state, are enthused about it. Grappling with nosediving domestic sugar prices and building cane arrears, the millers are waiting for clearer signals from the central government regarding some incentive for export, without which it would not be possible for them to do so.
Talking to FE on condition of anonymity, a miller said that though the intention behind the introduction of DFIA is applaudable, there are serious questions being raised on its success under the current market conditions. “World prices are already depressed because of a glut and a freight onboard (FOB) price of around $350/tonne at best may be offered for Indian sugar. Deducting the transportation cost and fobbing charges for such exports of around Rs 2,000-2,500 per tonne of sugar, the net price of sugar at the mill gate under current circumstances from such exports would work out to Rs 19,500 per tonne. As compared to current ex-mill prices of Rs 28,500 per tonne in Maharashtra, from where most of the sugar would be exported, there is clearly a net loss of around Rs 9,000 per tonne. As Uttar Pradesh is a land locked state, an additional transportation cost would be incurred to reach the sugar to the ports. And if the finance cost and margins of the exporters/traders are added, this loss would be higher,” he explained.
Yet another miller having a sizeable presence in the state said that there would be a loss of around Rs 10,000 per tonne of sugar as compared to the current ex-mill sugar prices. “The loss would be higher as compared to the cost of production of sugar. If we export 1 lakh tonnes up to 30th September 2018 under DFIA scheme, we will incur around Rs 100 crore as the loss. Since exporters are allowed to import raw sugar under the DFIA after an average of around 18 months i.e. only after October 2019, he will carry a loss of this Rs 100 crore in his balance sheet for an average of 18 months, incurring an interest burden of another at least Rs 15 crore.
Therefore, the total loss that the exporter will need to recover from the DFIA imports after an average of 18 months would be `115 crore from 1 lakh tonnes of white sugar produced from the imported raw sugar.
In other words, such exporters would require a margin of at least Rs 12,000 per tonne or more in 2019-2020 to recover their loss incurred upto September 2018. This is huge and none of us would be able to take such a plunge unless we are offered some kind of support,” he added.
“The announcement itself is not good enough. It is definitely a a step in the right direction, but it needs to be followed up as had been done in the past. The central government must come forward and announce some kind of subsidy for it to be sustainable. Otherwise, mills are in no condition to bear further loss,” said an industry insider, adding that there is too much uncertainty about the future too.
“One sees a lot of uncertainties about the future market conditions and scenario. The only certain part seems to be that the exporter or the concerned sugar mill will have to incur about Rs 100 to 115 crore losses on exports of 1 lac tons, which will be blocked for a couple of years, with a prayer on the lips and a hope in their heart that the sugar production in India in 2019-20, falls massively by 30 to 40% i.e. by 100 lakh tonnes, to allow sugar prices at the mill gate to touch Rs 40 per kilo. The moot question is, are we ready to take such a huge risk?” asked a sugar exporter.
Millers in Uttar Pradesh, which accounts for nearly 45% of the country’s sugar, are praying that the Government announce subsidies to sugarcane farmers as part of the cane price, like the government did in 2015-16 sugar season. The sugar mills in the state have been asking the government to announce subsidies of around Rs 7 to 10 per quintal of sugarcane, would give them enough strength to clear cane price arrears of farmers and also bear some losses on the MIEQ exports. “The sooner this is announced, it would be better as it would help us clear the cane price arrears of the farmers,” the miller said.
Source: financialexpress.com