Sugar reforms to lift mill revenue, exports

The government said the levy sugar quota would be cut to 15 per cent from 30 per cent with effect from April 1. "There will be more sales in the open market and surplus forfor exports," said Vivak Saraogi, managing director of Balrampur Chini, the country’s largest sugar company with a cane crushing capacity of 25,000 tonnes per day.

"Now the market forces will be able to decide whether to sell sugar in the open market or in the domestic market," said Gagan Gulati, General Manager of Adani Exports Ltd said. The cost of sugar in the Indian market is around Rs 13,000 ($278.9) a tonne against an international rate of around Rs 11,750.

Analysts said the impact on the international market would be felt after April 1, but would depend on prevailing global prices at the time — and the extent to which Indian prices fell to match that level. "After April we’ll be in a better position to export, obviously subject to the international rates at that time," said an analyst.

The reduction in the quota is part of measures to gradually ease state controls on sugar supplies in line with the recommendations of an expert panel in 1998. The government will cut its levy requirement by reducing the number of people getting sugar at subsidised rates.

Shares of key Indian sugar companies turned bullish on Thursday after the government’s announcement. Shares of Balrampur Chini closed Rs 7.45 per cent higher at Rs 98 and Dhampur Sugar posted a 7.7 per cent rise, closing at Rs 15.30 on the Bombay Stock Exchange.

The Bajaj Hindustan moved up 3.3 per cent to end at Rs 103.4, while the benchmark 30-share Bombay index was down 0.51 percent at 4027.13 points. "This will make a significant difference to their profits as they will now release their free sale quota according to market conditions," said an analyst at a domestic brokerage.

But the effect on company profitability was likely only in the long term. "The move augurs well for the industry, though there may not be an impact in the immediate term," said Saraogi. The government also decided to introduce forward trading in sugar and release a quota for free sale in the domestic market six months in advance instead of three months.

"Forward trading will keep the prices stable," Wadhwana said. India’s sugar output hit a record 18.2 million tonnes in the crop year 1999/2000 (Oct-Sept) compared with 15.54 million tonnes a year earlier.

India began exporting sugar last August as it tried to cut a sugar stockpile of nearly 10 million tonnes. The industry has been under pressure to trim stocks ahead of another expected bumper crop. The Indian Sugar and General Industry Export Import Corp Ltd, a private body that exports sugar on behalf of the industry, sold 14 cargoes of 12,500 tonnes each in August last year.

But quantities shipped have been lower than the government’s target of one million tonnes due to a fall in global prices.