PM Modi 2.0 to draft new sugar export policy post-Budget

Kolkata: The Modi 2.0 government is toying with the idea of coming up with a new sugar export policy to reduce glut and address the concerns of the sugar industry, which otherwise is reeling under some other crisis. An export-linked subsidy scheme for sugar mills is also on the cards as part of the new export policy. It is also learnt that the PMO may directly coordinate with the Union Food Ministry to formulate this new policy. The task of drafting the new sugar export policy is expected to be taken up post budget.

Quite interestingly however, although the proposed policy aims at reducing glut, sugar output in India is actually apprehended to drop to a three-year low next season from a record level as dry weather shrivels cane plants in some major growing areas of the country that vies with Brazil as the world's top grower.

Even the latest ICRA report suggests that after a record sugar production in SY2019, the output ICRA may decline in the forthcoming sugar season, SY2020, thanks to drought-like conditions in Maharashtra and Karnataka. Despite the expected decline, pressure is likely to continue on the sugar prices and the consequent operating margins in FY2020 given the expectation of continued sugar surplus scenario. India's ability to export sugar and continued policy support by the Centre to divert sugarcane production towards ethanol manufacture will remain key to health of sugar industry.

"We expect domestic sugar production for SY2020 to decline from 32.9 million MT in SY2019 owing to drought-like conditions in major sugar producing states, such as, Maharashtra and Karnataka. However, it is too early to ascertain on the quantum of decline in production. ICRA estimates domestic sugar consumption to be around 26.0 million MT in SY2019 and the closing stocks at around 14.5 million MT. While anticipation of decline in sugar production has resulted in recent increase in the sugar prices to Rs 33-33.5/kg (ex-mill UP), pressure on sugar prices going forward cannot be completely ruled out given that sugar surplus situation is likely to prevail on account of the significant opening stocks for the forthcoming season," said Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Rating, ICRA.

This is notwithstanding the fact that sugar production in SY2019 is likely to be higher by 2 per cent Y-o-Y at around 32.9 million MT when compared to 32.2 million MT in SY2018. This is driven by the healthy production in the key sugar producing states, such as, Maharashtra, Uttar Pradesh and Karnataka. This sugar production is after considering the diversion of 'B' heavy molasses and sugarcane juice away from sugar, into ethanol. In UP, there has been a decline in the production by 5 per cent YoY to 11.4 million MT in SY2019 due to untimely rainfall; however, it continues to remain healthy.