Covid impact: Domestic sugar consumption likely to dip 2 million tonnes

The prices of sugar and ethanol are fixed by the government.
Domestic sugar consumption, which has been witnessing near-muted growth since a few years, is estimated to drop 2 million tonnes (mt) in the current sugar season (Oct-Sep), owing to the lockdown.

This is almost 7 per cent of the total production the 2019-20 season, which ends in September.

Net consumption is likely to drop to 24 mt, against the average domestic consumption (comprising all household and institutional sales) of 26 mt, National Federation of Cooperative Sugar Factories’ MD Prakash Naiknavare told Business Standard.
“Bulk of the slump in demand is expected during the peak summer season,” he said, adding that even after the lockdown is lifted, it will take 3-4 weeks to reenergise the entire sugar supply chain. According to estimates, domestic institutional sales account for 65-70 per cent of total sugar sales, with the remaining coming from the household segment.

“Covid is a major blow for the industry, since the natural sugar demand that kicks in from February, and peaks in May-June, is not happening. Even if the lockdown were lifted next month, the industry would fail to make up for the lost opportunity,” Naiknavare added.

Abinash Verma, director general of Indian Sugar Mills Association (Isma), says sugar offtake had already dipped by 1 mt in the past 45 days owing to the decrease in market demand and transport restrictions.

 

 
He claimed that working capital of nearly Rs 70,000 crore was stuck in unsold sugar and ethanol inventories in sugar mills. Demand for ethanol has also fallen due to the drastic dip in fuel consumption. Colle-ctively, these elements have dented the cash flow of sugar mills and impaired their ability to pay cane farmers, thereby prompting them to approach the Centre for urgent relief. According to estimates, sugarcane arrears have breached the Rs 15,000-crore level across India, a bulk of which pertains to mills in Uttar Pradesh and Maharashtra.

In fact, Isma has written several letters to the government and the Prime Minister’s Office (PMO), demanding a slew of measures such as infusion of liquidity to tide over the crisis.

“We have suggested that whatever is due from the government to the sugar industry in the form of subsidies — including buffer subsidy, export subsidy, interest subsidy on soft loan, etc — over the past two years, should be allocated to the food ministry in a budgetary package and be released against the claims of mills,” said Verma.

Besides, the repayment of soft loans — the scheme under which the mills had availed of Rs 7,500 crore to pay farmers — had started from March. “Given there was 7 per cent interest subvention for one year, we have requested the subvention window to be increased by another year,” he said, adding it would give cash flow relief of Rs 500 crore to millers.

Isma has also urged bankers to reduce the working capital margin requirement to 10 per cent, on both sugar and ethanol, from the current 85 per cent and 75 per cent, respectively. This is because the RBI has also asked banks to consider reducing the margin requirement.

The price of both sugar and ethanol is fixed by the government. As such, there is no possibility of downside in their realisation and subsequent repayment of bank loans, added Verma.

Meanwhile, the UP government has written to the Union financial services secretary regarding removal of the sugar sector from the negative list of the Reserve Bank of India (RBI), so that millers could raise fresh capital and settle their outstanding dues.

Sanjay R Bhoosreddy, principal secretary (sugarcane development) of UP, said in his letter that after the RBI placed the sugar sector in the negative list owing to fluctuations in sugar prices, bankers became reluctant to lend to the industry, citing tough regulatory norms.


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