Sugar industry’s future looks good but persisting concerns need attention, says rating agency

A report published by credit rating agency Infomerics Valuation and Rating released on Thursday said that the future of sugar industry looks very encouraging but some persisting concerns need urgent attention according to The sugar report states that the government has been proactive and supportive keeping in mind its size and the number of livelihoods associated with it, but, the focus needs to shift towards arriving at a resolution of the problems with regard to Fair and Remunerative Price (FRP), Minimum Support Price (MSP) and cane arrears.

The report highlighted that the sugar production for the sugar season 2021 was 310 lakh metric tonnes (LMT). State-wise mill sugar production in India was also revised from 27 million metric tonnes (2019-20) to 31 million metric tonnes (2020-21). Sugarcane production is estimated to be 3993 lakh tonnes for 2020-21 whereas sugarcane revenue more than doubled in the last decade rising steeply from Rs 1391 per tonne in sugar season 2011 to Rs 2850 per tonne in sugar season 2021.

Sugar exports surpassed 5 million tonne mark in early August with Indonesia being the biggest buyer. The report added that the Fair and Remunerative Price (FRP) increased to Rs 290 per quintal for sugar season 2022. However, the issues of the MSP and cane arrears continue to be important.

India’s centrifugal sugar production is estimated at 34.7 million metric tons (MMT) in marketing year (MY) 2021/2022 (October-September), increasing three percent above the previous season

The report said that the government has been largely supportive when it comes to the sugar industry from increasing Fair and Remunerative Price (FRP), increasing Minimum Support Price (MSP), promoting efficient ways of fuel production to the likes of ethanol. Some recent developments undertaken by the government include:

Under the Sugar Export Policy for Evacuation of Surplus Stocks during Sugar Season 2020-21 the government would be providing a lump sum assistance of Rs 6000 per metric tonne to sugar mills to facilitate the export for which an estimated expenditure of Rs 3500 crore would be borne by government

The Central government, in its National Bio-fuels Policy, 2018, mandated for 10 per cent blending of ethanol into motor fuel by 2022 and 20 per cent by 2030. In this vein, for the current SS2021, more than 20 LMT of sugar is likely to be perted towards ethanol production whereas in the next SS2022, about 35 LMT of sugar is estimated to be perted towards the same, with a plan to pert about 60 LMT of sugar by 2024-25.

FRP for sugarcane has been revised for SS2022 at Rs 290 per quintal for a basic recovery rate of 10 per cent, providing a premium of Rs 2.90/quintal for each 0.1 per cent increase in recovery over and above 10 per cent, and reduction in FRP by Rs 2.90/quintal for every 0.1 per cent corresponding decrease.

The report added that the government has taken care of the interests of the sugarcane farmers but the concerns of the sugar mills also need to be addressed. The industry body Indian Sugar Mills Association (ISMA) has been pressurizing the government to increase the MSP for sugar to possibly ?35/kg from the current Rs 31/kg.

A target for blending 20 per cent ethanol in gasoline by 2025 is set. However, the government faces a risk of surge in sugar prices, thereby exacerbating inflationary pressures.

As on March, 2021, India’s cumulative arrears (debt) stood at USD 2.58 billion (? 190.6 billion) of which 89 percent is yet to be cleared in Marketing Year (MY) 2020/21.