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Sugar exports from India come to a standstill, global prices surge awaiting government incentives.

Date: 24-11-2020
Subject: Sugar exports from India come to a standstill, global prices surge awaiting government incentives
Sugar exports from India have come to a standstill since October 1 as the industry has been awaiting the Union government to announce an export policy for the commodity or shipments incentive.

The Indian government’s delaying an announcement of an incentive for sugar exports has also resulted in the commodity’s prices rallying the global market. On November 10, Reuters reported that the Centre has revived plans but nothing has been heard of it till now.

“It has been two months since the new sugar season has begun. The government has not made any announcement on export incentive. As a result, global sugar prices have rallied,” said Rahil Shaikh, Managing Director of MEIR Commodities and Vice-President of All India Sugar Traders Association (AISTA).

“We got an incentive of Rs 10,330 per tonne for sugar exports last year. This year, it might be lower as per the formula of the Government. Besides, the Centre needs to announce a higher minimum support price for sugar and decide on building buffer stocks,” said D K Sharma, Wholetime Director, Awadh Sugar and Energy Limited.

As a result of the incentive, sugar exports hit a record 57 lakh tonnes last season (October 2019-September 2020) against a target of 60 lakh tonnes. This year, the industry hopes it can export at least 50 lakh tonnes.

The Centre has fixed Rs 31 a kg as MSP for sugar and a committee headed by Union Home Minister Amit Shah has recommended Rs 33 as MSP.

“There is good demand from South-East Asia and Gulf countries,” a trading source said without wishing to identify.

Exporters feel that at least 15 lakh tonnes could have been shipped out from the country had the Government announced its decision on incentive.

“The industry has been expecting the Government to announce its decision since September when it became clear that we will have a good crop,” said the trading source.

Currently, sugar mills in Uttar Pradesh are getting Rs 32,500 a tonne from domestic buyers.

In the global market, raw cane sugar prices in New York are quoting at USD 15.21 a pound. Prices are up 4.9 percent in the last one month and 15.84 percent year-to-year, according to Trading Economics.

In London, white sugar was quoted at USD 413.30 a tonne (Rs 30,650) on November 23.

Shaikh said with Brazil crop coming to an end, it will not be until March that new arrivals will begin. That will leave India with an advantage to tap in the global market and this is one reason why the trade is looking for signals from the Indian government.

“Commerce Minister Piyush Goyal has said that sugar incentive is not on the table,” said Shaikh, pointing out to why the sugar industry has kept a low profile in the last couple of weeks.

According to S&P Global Platts, the sugar market could be almost balanced during the current season to September 2021 with the markets vulnerable to macro influences, including trading decisions.

Sugar production could be lower-than-expected as the crop in Brazil and Americas could be threatened by warm weather effect La Nina, which leads to drought.

Global sugar production, including from beet, during 2020-21 is forecast at 173.46 million tonnes but sugar consumption could also rise by 2.6 percent to 174.19 million tonnes. That will result in over 0.7 million tonnes deficit.

“We can sell our raw sugar at a higher rate than New York price. It could be at a premium of USD 20 a tonne,” Shaikh said.

Awadh’s Sharma said the delay in announcing export incentives could affect the industry as a good quantity could be shipped out during January-March.

“Things will be difficult once Brazil returns to the market. There could be a drop in prices by Rs 5,000-6,000 a tonne and India could be forced to cut prices,” he said.

Shaikh said even if the Government offers an incentive of Rs 5,000 a tonne, it would help going by current price trends. Sharma concurred with his views.

One of the reasons why the sugar industry is looking to the Government is that it is yet to get the incentives that were announced last year totalling Rs 6,300 crore. A major part of the incentive is outstanding and industry estimated it at over Rs 5,000 crore. This has resulted in cane arrears to farmers running to over Rs 6,000 crore.

“There is a problem with payments by the Government due to the novel Coronavirus pandemic. The delay in reimbursements of the pandemic is understandable,” the trading source said.

Shaikh said if exports get affected, then India might be forced to carry over 18-19 million tonne of stocks, which could create problems for all in the industry.

This season, sugar production has been initially estimated at 32 million tonnes, while the industry has carried over 10.64 million tonnes of stocks from last season.

“We can easily export 50 lakh tonnes if the government announces incentive,” said Sharma.


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