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Sugar mills hit as excess output trips supply balance

On Tuesday, shares of sugar mills fell sharply on a sharp upward revision to output estimates. While there were fears this could happen, the quantum was significant.

The government will soon have to bail the sugar industry out of its predicament. On Tuesday, shares of sugar mills fell sharply on a sharp upward revision to sugar output estimates. While there were fears this could happen, the quantum was significant. The government may have little choice but to offer support in the form of export quotas and a rupee subsidy to make it worthwhile to export sugar.
The Indian Sugar Mills Association (ISMA) revised its estimate for sugar to 29.5 million tonnes, up from its earlier estimate of 26.1 mn tonnes. Thus, output will be in excess of consumption by about 4.5 mn tonnes. The previous season had closed with inventory of 4 mn tonnes, according to ISMA.
The main reason for the revision is a surge in Maharashtra’s output to 10 mn tonnes compared to 4.2 mn tonnes in the previous year. Karnataka’s output has also been revised up. Once again, the inability of the industry or government to accurately forecast sugarcane output and yields is a problem that comes back to bite investors.
ISMA has reiterated its demand to be allowed to export some of this excess, to lower the domestic surplus and support prices. Second, mills can raise cash through export sales, which can be used for business needs and to clear mounting arrears to cane farmers, which has risen to around Rs14,000 crore,
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