Cash-strapped sugar mills, waiting on the government to approve export subsidies, are being forced to dump supplies in the domestic market to raise cash to pay cane farmers. This has brought local prices down to 4-1/2 year lows.
This is the fifth consecutive year when the production has surpassed demand and will further deepen losses for producers like Shree Renuka Sugars Ltd, Bajaj Hindusthan and Balrampur Chini Mills.
India is the second largest producer of sugar in the world and exported more than 1 million tonnes of raw sugar in 2014 but in the current season ensuing Oct 1, it has exported little.
President of the Bombay Sugar Merchants Association (BSMA), Ashok Jain said, “Mills don't have a choice. On the one hand the sugar commissioner is asking them to pay farmers cane dues quickly, on the other hand demand is weak for sugar.”
In the last five years cane price has climbed 65 percent in five years, while sugar prices have fallen 8 percent. The federal government and states fix the price at which mills can buy cane from farmers each year.
Some co-operative mills from the biggest sugar producing state, Maharshtra sold sugar at 2,460 rupees ($40) per 100 kg this week, the lowest level since August 2010.
Sanjeev Babar, managing director of Maharashtra State Co-operative Sugar Factories Federation said, “Cost of production is higher than current sugar prices. Mills are not able to pay the stipulated cane price.”
"Exports can help reduce the stockpile and raise prices, but the government is delaying a subsidy announcement." He further added
Sources from government said, India was considering a rise in the subsidy to 4,000 rupees this year, a steep rise from last year's 3,300 rupees a tonne.
But Prime Minister Narendra Modi's cabinet has yet to approve the proposal, potentially halving this year's raw exports from a year ago.
"Inventory is rising every day due to ongoing cane crushing. Prices are unlikely to recover unless we manage to sell in the world market," BSMA's Jain said.
