This will also bridge the gap between domestic prices and the cost of production, analysts felt.
Kolkata: The Centre has recently raised the minimum support price (MSP) of sugar by Rs 2 per kg. This in turn is expected to generate an additional income to the tune of Rs 3,000-3,500 crore for the sugar producers in the entire sugar season (SS) of 2018-19. This will also bridge the gap between domestic prices and the cost of production, analysts felt.
The Indian Sugar Mills Association (Isma), on its part, is of the view that the hike in MSP was mainly aimed at addressing the issue of mounting cane arrears.
Interestingly, as on February 13, 2019, cane arrears stood at Rs 20,200 crore. The hike in MSP will boost realisations, thereby freeing up nearly Rs 3,000-3,500 crore for payment towards cane arrears, Isma felt. This notwithstanding, Isma said cane arrears are likely to remain high in the medium-term, considering the higher cost of production, the supply glut restricting the increase in wholesale domestic prices, and the already suppressed export prices.
India Ratings & Research (Ind-Ra) said the sector outlook remains negative for non-integrated sugar companies, thanks to high carry-over stock from the last season, surplus production in the current season, and weak international prices. Integrated sugar companies with alternative revenues streams from ethanol and power would be better placed.
Significantly, this sugar season, India started with a pretty high opening stock of 10.7 mt (up from the 2017-18 level of 3.9 mt). India is likely to end the season with a stock of around 11 mt (including a buffer stock of 3 mt). Adjusting for this buffer stock, the stock-to-consumption ratio could exceed 30 per cent compared to the normative carry forward requirement of 16 per cent-18 per cent.
All these facts and figures will have to be seen in the light of the fact that India had produced 18.5 mt of sugar till the end of January 2019, up 8 per cent from the corresponding period production in SS 2017-18. This is because the mills had started crushing earlier this season. However, sugar production is likely to decline to around 30 mt in SS 2018-19 from the record high of 32.3 mt in SS 2017-18 due to deficient rainfall, white grub and red rot infestations in the key cane producing states of Uttar Pradesh and Maharashtra.
Despite being lower than the last season, production in SS 2018-19 is likely to exceed sugar demand of around 26 mt.
Ind-Ra believes all these facts coupled with the MSP hike will push up the domestic wholesale prices to around Rs 33-Rs 34 per kg from the level of Rs 31-Rs 32 per kg that has been prevailing since Nov-ember 2018.