Bleeding Indian Sugar Industry - Will Implementation of E5 Mandate be a Relief?

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By: Vijayabharathi -- Lead Analyst

31 December, 2014

Bleeding Indian Sugar Industry - Will Implementation of E5 Mandate be a Relief?
WHITEPAPER

Sugar remained sweet for consumers this year while it became bitter for mill owners, who faced severe losses owing to 4th consecutive surplus year, declining global prices for 2nd year amid lack of timely policy decisions and support from the government. Average production cost of sugar in India stood at INR 32.5-33 per kg whereas average selling price stood INR 30.5 per kg resulting in massive loss of INR 140 Billion in 2013/14 season. After infusion of working capital by government and accounting realization from by-products, the loss reduced to INR 300 Billion by Dec-14. With sugar production set to outweigh demand for the 5th year in a row, the cash starved industry fears that Brazil, the largest sugar producing country will shift more sugarcane to sugar than ethanol in view of declining crude oil prices globally. On the above sentiments, sugar prices plunge further in last few weeks forcing mills to shut down. Already 11 mills are closed in Maharashtra; further 6 mills are likely to shut down their operations. Mills in southern and western parts of the country are facing a loss of INR 5 per kg currently, while those in north India are incurring losses of INR 7 per kg. The Indian government is planning to set huge import tax to avoid cheap sugar imports from Brazil and provide an export subsidy to export raw sugar to ease out inventory. Further, Oil Marketing companies have agreed to procure 970 million liters of ethanol in 2014/15. Will the above mentioned measures assist the sugar industry? Where Indian Sugar industry is heading to amid global surplus year?