Is it a good time for sugar companies?

In the sugar industry, the scenario is pretty grim. A global shortage accompanied by acute shortages of cane in India had led to unutilised capacities in sugar companies. But a recent government policy has come as a savior to the sugar industry.

Why the policy change?

Global sugar deficit is seen at 7 to 8 million tonnes in 2009-10. In India, it’s not any better. States like Maharashtra and North Karnataka are facing acute shortage of cane. The supplies are down 40% over last season in this region

The domestic sugar output for 2008-09 is seen at 16.5-17.5 million tonnes, a far cry from the requirement of 23-24 million tonnes. Thanks to the demand supply mismatch, domestic sugar prices went up by more than 20% in the past three-months and by over 45% year on year.

It's a strange problem for the sugar industry. While on one hand, they could benefit from the rising sugar prices, on the other hand, they could not run their mills in full capacity to produce stocks.

In such times, the new policy comes as good news.

The policy: Old vs New

The policy is not a new one but a revision of an old sugar import policy for exporters. Before the revision, the policy laid out that for every 1.5 tonnes of raw sugar imported, the manufacturer had to compulsorily export 1 tonne of processed white within 24 months of import. And worse still, the export had necessarily to be from the same imported stock, or grain-to-grain as it was called.

Now according to the revision, while the ratio of import to export remains the same, the requirement of grain-to-graon has been done away with. Now, manufacturers and merchants can import raw sugar. That imported stock can be fully utilised for domestic sale and the export obligation can be met out of According to the new policy, raw sugar can now be imported both by manufacturers and merchants who would subsequently export white sugar independently through domestically processed sugar. Imports under the new policy would be permitted from February 17 to September 30, 2009.

Impact on the sugar industry

This comes as a relief to the domestic sugar producers as they can immediately use their excess capacity and also sell in the domestic market first. They can then meet their export obligation through domestic processes.

Impact on sugar companies

Shree Renuka is likely to be the biggest gainer of duty free raw sugar import and its standalone refinery at Haldia will benefit the most from the announcement.

Shree Renuka is the largest manufacturer of ethanol blended with gasoline in India. It started a 2000 TCD refinery in Haldia, which started operations in late FY08. Haldia unit is currently ramping up production.

Narendra Murkumbi, Managing Director of Shree Renuka Sugars, said that the notification of new import policy on import of raw sugar by the government is a positive move for the entire sugar industry. He said sugar is among the top-three commodities and world sugar prices are up 20% from the October 1 price.