The central government’s decision last year to impose a compulsory export quota for mills would have a double whammy effect on them, say millers.
Apart from a loss of approximately Rs 400 per quintal of sugar exported that they could incur, mills in Maharashtra would also fail to benefit from a rise in sugar prices in the domestic market in the months to come.
In order to sustain the price of sugar in the domestic market, the Centre had taken a decision to fix an export quota for mills across the country, based on the last three years’ average production. Maharashtra was assigned the highest such quota of 14 lakh metric tonnes, followed by mills in Uttar Pradesh and other states.
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Since Uttar Pradesh is a landlocked state where millers have to bear huge costs to transport their export consignment through ports in Mumbai and elsewhere, mills there were allowed a trade-off for sake of equalisation. As per this, UP mills could buy sugar equal to their export quota at existing domestic market prices from millers in Maharashtra, who in turn would export the same volume along with their own fixed quota.
As international sugar prices have been lower than the domestic prices, it results in a loss of Rs 200-400 per quintal for exporting millers. But the bigger question, especially for millers in Marathwada and Solapur, is that due to the drought, production has been less this season as compared to last three years.
The matter was raised before the chief minister last week by the millers, especially from the Solapur and Marathwada regions, who are expecting a decision from the government to lower their export quotas.
Till the end of February this year, around 12 lakh tonnes of sugar has been exported out of the country, of which mills in Maharashtra have exported close to 6 lakh tonnes. Around
3 lakh tonnes of the exported sugar was from their own quota while the rest was a result of the trade-off with mills in UP.
However, industry insiders from Kolhapur pointed out how this scheme would affect millers in the state, both in the short and long term. “The 2016-17 crushing season for Maharashtra is supposed to be bleak with a reduction in cane area. As the mills from Maharashtra are exporting both their own as well as the trade-off quota for UP mills, they would not be able to encash on the domestic market where prices are expected to rise well,” said a prominent miller from Kolhapur. Data from the NCDEX index shows prices of sugar in July are expected to be above Rs 3,400 per quinital with October prices promising to touch Rs 3,500 per quintal.
The recent report on sugar production prepared by the India Sugar Mills Association (ISMA) shows that barring Maharashtra, all other states have registered slight increase in their sugar production figures. As of February 29, Maharashtra produced 70.40 lakh tonnes of sugar while last year on the same day, ie February 28, 2015, the state had produced 74.74 lakh tonnes of sugar.
Uttar Pradesh has seen production of 53.65 lakh tonnes of sugar till the end of February while last year, it had produced 49.59 lakh tonnes of sugar till February-end. While the cane outlook for Maharashtra for the season 2016-17 is bleak, the same for Uttar Pradesh is good, with the state expecting a good crop.
B B Thombare, president of the Western India Sugar Mills Association (WISMA), said millers had been assured by the chief minister that they would be allowed to export based on the present day’s quota only. “Export would help in keeping the domestic prices up,” he said.
However, the official notification about the reduction of the export quota is yet to be issued.