The world's second largest producer of the sweetener is seeking to boost exports as well
As India struggles with a sugar surplus, it coughs up subsidies to farmers
The environment has soured for India’s sugar industry, the world’s second largest after Brazil.
Low prices and a glut of sugar supply following an increase in production are weighing on the sector, hurting the profitability of farmers and producers.
“The sugar industry has a lot of stock, which has been keeping it in the red for a while,” says Pankaj Agarwal, the co-founder and managing director of Just Organik, an Indian organic food products company. “It’s been going through turmoil.”
India has been producing record amounts of the commodity, which has led the global surplus to peak this year.
Asia’s third-largest economy produced a record 32 million tonnes of sugar in the year to the end of September, according to the Indian Sugar Mills Association.
This was partly because of favourable weather and financial support from the government for the industry.
Meanwhile, India, which is the world’s largest consumer of the commodity, used about 25 million tonnes of sugar a year. This leaves producers to try to export a surplus at a time when demand for sugar around the world is on the decline.
Sugar prices globally have fallen to a decade-low, tumbling to around 10 cents per 0.4kg. Sugar futures have slipped 16 per cent this year in New York amid the supply glut.
To make things worse, Australia is angry with India, and on Friday revealed that it plans to take action against the subcontinent nation at the World Trade Organisation over sugar subsidies.
Australia claims that New Delhi’s support for the sector was leading to a downturn in global prices and affecting Australian producers, according to ABC News.
“We have raised our industry’s deeply-held concerns on numerous occasions with senior levels of the Indian government,” Australian Trade Minister Simon Birminghamsaid. “We are disappointed our concerns haven’t been addressed and now see little choice other than to ramp up our efforts to stand up for the rights of our cane farmers and sugar millers.”
Amid the challenges in the industry, Prime Minister Narendra Modi’s government has been trying to prop up the sector this year by offering bailout packages. With a general election due to be held next year, aid for the sector is seen as an opportunity to win votes.
More than half of the country’s population depends on agriculture for their livelihood. A spate of farmer suicides, many of whom are sugar cane growers, has raised concerns about the sector. Farmers have been staging protests to secure better prices for their crops.
India’s sugar sector directly and indirectly contributes 750 billion rupees (Dh38bn) to the economy, and supports two million jobs, according to the Indian Sugar Mills Association.
The states of Uttar Pradesh in the north of India and Maharashtra in the west are two of the country’s main sugar-producing regions.
The government in June announced a $1bn bailout package for sugar mills and farmers. In September, this was followed with a 55bn rupee package for the industry, including transport subsidies for mills when exporting sugar.
But mills and farmers say they are still struggling, despite these subsidies.
“Sugar mills are having a lot of challenges because the government has increased the sugar cane price for sugar cane farmers, but the price for sugar in the market has not yet increased,” says BB Thombare, the president of the Western Indian Sugar Mills Association. “If prices decrease further, the situation will be worse because of a shortage of working capital.”
He says that mills were currently not able to cover the costs of sugar production.
Many farmers are not reaping the benefits either.
“Farmers have been struggling for a while,” says Mr Agarwal. “Things are better, but I think to reach a state where we say that yes these sugar farmers are making money, it is going to take a while.”
Farmers have not necessarily received the price benefits announced by the government, he explains.
“Announcing the pricing is one thing and payment to the farmers is another thing,”
he says. Because many sugar mills are struggling, “they do not have enough cash flow with them to pay these farmers”, says Mr Agarwal.
But the government is taking more steps to try to support the sector, with efforts under way to boost exports.
This month, India’s ministry of commerce and industry announced plans to export 50,000 tonnes of raw sugar to China. In a statement, the ministry said this move was aimed at reducing the $60bn trade deficit with China.
“India is in a position to become a regular and dependable exporter of high quality sugar in significant volumes to China,” it said.
There are other factors that are lending support to the export market.
“Indian exports are shining on the back of a weakening rupee,” says Abhishek Bansal, the chairman of Abans Group of Companies, a financial services firm based in Mumbai.
In recent months, the rupee has fallen to a series of record lows against the US dollar.
“Mainly Indian sugar exports are becoming more viable due to lower domestic prices compared to global markets,” he says.
New Delhi is aiming for India to export 5 million tonnes of sugar in the current financial year, which runs from the beginning of April to the end of March.
India Ratings and Research, which is part of the Fitch Group, says that assuming these targets are met, the bailout package announced in September could lead to additional cash flows of 90bn to 100bn rupees for sugar mills.
But with stiff competition from Brazil and Thailand with regard to exports and given the depressed prices of sugar globally, the sector overall is still facing headwinds, according to the ratings agency.
“Overall, we opine a bleak outlook for the sugar sector for this year, based on low realisations, glut and depressed international market for export,” says Khushbu Lakhotia, a senior analyst at India Ratings.
There are other woes plaguing the industry too.
Drought and pest attacks on sugar cane crops could reduce the amount of production in the coming months, industry experts say.
“The climatic conditions have changed with drought,” says Mr Thombare.
“There are some diseases in the sugar cane crop. One is the white grub and the other is the red rot.”
This is likely to result in a 15 to 20 per cent decline on previous estimates in the current season, which began in October, to 30 million tonnes, he says.
It could have a silver lining, though, and help to support prices, he adds.
“We feel there will not be much price reduction in the Indian market and the prices should remain stable,” he says.