Falling crude prices could result in the Indian market being flooded with Brazilian sugar in the coming months, according to A Vellayan, executive chairman of the Rs 25,000-crore Murugappa Group.
“The current crude prices make it unattractive for mills in Brazil to produce ethanol. Therefore, they will use much of their cane for sugar. That, along with a weak real (the currency has depreciated 13 per cent against the dollar so far this year), will make Brazilian sugar very cheap and depressing global prices further,” Vellayan, who has taken over as the new president of the Indian Sugar Mills Association, said.
The time has come, he said, for the government to raise the import duty on sugar to 40 per cent, from the existing 25 per cent. Brazilian production commences from March and India needs to also export at least 1.5 million tonnes (mt) of sugar before that.
Vellayan claimed that many mills were now selling their sugar to international trading houses in the forward market in order to generate the funds to pay cane farmers.
“This is because banks have stopped extending working capital. The international traders, who are able to source cheap dollar money at 2 per cent interest, are taking advantage of the situation and contracting forward purchases even till March, thereby bringing down sugar prices further,” he added. Tarun Sawhney, MD of Triveni Engineering & Industries, noted that ex-factory prices in Uttar Pradesh have dropped in last three weeks from an average of Rs 29.50 to Rs 27/kg. “The government must do something about sugar prices, which have remained stagnant or even fallen in the last five years,” said the outgoing ISMA president Ajit Shriram.
According to him, out of the country’s 24 mt annual consumption, 10 per cent is sold through the public distribution system and 65 per cent is bought by industrial users. “Only the balance 25 per cent is purchased directly by households, who consume hardly 5 kg per month. So, even Rs 5/kg price increase will not really pinch,” Shriram added.