Since last year there is welcome improvement in sugar production in Tamil Nadu, thanks to better availability of water and higher prices. According to N Ramanathan, MD, Ponni Sugars Ltd, in the current season sugar output is estimated around 11 lakh tonnes against 8.5 lakh tonnes in the previous year. With good monsoon, there are prospects of a 30 per cent increase in the coming season. Production is estimated around 14 lakh tonnes. Thus, in just two years there will be increase of 50 per cent in production. But remember, the state had a peak production of 25 lakh tonnes not long ago!
In Tamil Nadu, Rs 1200 to Rs 1500 is spent on harvesting sugarcane out of the Rs 3000/tonne of sugarcane price, leaving less or negative margin in the hands of cane farmers. Labour is scarce with frequent absenteeism: against the old practice of a couple of festive seasons a year, today such seasons seem to be monthly affairs!
LOW RECOVERY OF TN
Recovery of sugar still continues to be around 9.2 per cent against the all-India average of 11 per cent, UP (11.43 per cent) and Maharashtra (11.21 per cent). Thus, on this lower level of recovery, in the consumer price of sugar at Rs 35/kg, the effective realisation of TN mills is lower by Rs 7.
The uneconomic nature of the industry in recent years had resulted in nearly half the sugar mills remaining closed. The Resolution plan in the case of one of the established players under the Insolvency and Bankruptcy route evoked little response and very low offer. Eventually it fetched a pittance for the lenders. The sugar industry seems to be affected most in TN, AP and southern Karnataka., though improved water availability and higher prices have some what sweetened the fortunes of the industry.
RECORD EXPORT OF 100 LAKH TONNES
With large stocks and high levels of production, sugar exports during the current season would touch a record 100 lakh tonnes. India has been breaking new records on exports for the past 3 years. This has considerably helped the industry to produce inventory, achieve domestic price stability and improve liquidity. Export price has been favourable around Rs 34/kg this time, the main reason for the country to achieve the all time high export without a single rupee of sector specific government subsidy. With stocks going down, exports may be lower around 5 lakh to 6 lakh tonnes from the next year.
With high priority given to the production of ethanol, the large surplus sugar available for exports will diminish. Roughly 34 lakh tonnes of sugar is diverted for making ethanol this season, thanks to the much higher prices offered. The earlier practice of making ethanol was largely from molasses. Higher ethanol prices make producing ethanol more remunerative than sugar. Next year around 50 lakh tonnes of sugar would be diverted to make ethanol.
The concerted push by the Central government on ethanol has been the major game changer for the sector. While Brazil took 25 years from 1975 to 2000 to mandate doubling the ethanol blend from 10 per cent to 20 per cent, Indian government has set an audacious target to achieve the same in 3 years! Of course, Brazil does a lot more of voluntary blend based on price parity among fuels on a dynamic basis.
RECORD PRODUCTION AT 35.5MT
Sugar production is well-poised to peak at 35.5 MT in 2021-22 season. Production during 2022-23 is expected to be on par based on favourable monsoon forecast and for larger diversion to ethanol.
Sugar production has been maintained at high levels in the last 10 years that is comfortably higher than domestic consumption, transforming the sector structurally surplus.. Local consumption next year is estimated at 28 MT. Thus, a surplus for exports of around 5 MT-6 MT is possible. Export price is presently around US $ 550/tonne in the London White sugar market. Export surge was also caused by lower production at traditional large sugar producers of Brazil and Thailand. Seasonal factors cause steep decline once in around 5-7 years, said Ramanathan.
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