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Mills exporting sugar but struggling to meet target

The government has been pushing mills to sell sugar on the international market and use the proceeds to clear huge debts they owe farmers for sugarcane.

David Brough And Rajendra Jadhav | October 19, 2015 | Updated 16:14 IST
Government made it compulsory, last month, for sugar producers to increase exports to at least 4 million tonnes in the present crushing season.
Government made it compulsory, last month, for sugar producers to increase exports to at least 4 million tonnes in the present crushing season. (Photo: Reuters)

Indian mills have contracted exports of almost 100,000 tonnes of home-grown white sugar, but will likely struggle to meet an ambitious government target, traders said.

The government has been pushing mills to sell sugar on the international market and use the proceeds to clear huge debts they owe farmers of sugarcane .

The world's number two producer announced new rules last month making it compulsory for sugar producers to increase exports to at least 4 million tonnes in the present crushing season to reduce stockpiles.

The raw sugar export subsidies for the current crushing season are not expected to be approved before Bihar elections finish next month, and mills are focused instead on exporting white sugar to raise cash to finance the upcoming crushing season.

Producing at a loss, the country's sugar mills have received a contract to export 90,000 tonnes of white sugar to Asian countries such as Myanmar, Afghanistan and Sri Lanka at $390-410 a tonne FOB, for October-November shipment, as mills require cash for the new crushing season from October 1, trade sources said.

"Traders have been finalising contracts around $400. There is good demand at this level from Afghanistan and Myanmar," said a Mumbai-based trader with a global trading firm.

"Mills need money to start the new season. They are willing to compromise on prices."

Most mills are likely to start crushing operations in November.

The new season started with a carryover stocks of 9.6 million tonnes, up from 7.5 million last year, the Indian Sugar Mills Association estimates.

The mills have receiving around Rs 25,000 per tonne for sugar sold domestically, about the same as they would receive from exports, traders said.

Robin Shaw, sugar analyst with Marex Spectron, said that he did not expect to see a big flow of white sugar exports as the price incentives were not sufficient for mills.

"I think that the government is switching from the idea of forcing exports by mandate, and also from the idea of subsidising exports, to the idea of some kind of voluntary system whereby mills are encouraged to export," he said.

Shaw said mills could be offered soft loans to pay off cane arrears.

"So I think exports will take some time to arrange and will be limited in volume."

Claudiu Covrig, senior agriculture analyst at Platts, said that he saw limited prospects for mills to export sugar.

"They won't respect this target with no further subsidies," he said.

(REUTERS)

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