Sugar demand squeeze and falling prices result in rising cane dues

Share this News:

27 April 2020, India – The national lockdown due to the COVID-19 virus pandemic has adversely impacted the sugar demand, resulting in a decline in the sugar prices to closer to MSP levels of Rs. 31/kg from Rs. 32.5/kg in February 2020. Further, the sugar mills are unable to fulfill their monthly sales quota allocated by the government owing to demand squeeze. These factors lead to a stress on the working capital requirements of sugar mills and resulted in building up of cane dues to farmers.

Says Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, “With nationwide lockdown, the ice cream, soft drinks and confectionary manufacturers have shut down their operations. Usually, Q1 is a healthy demand season for sugar, driven by the demand for ice creams and soft drinks during summer season. With the lockdown, ICRA expects that the overall adverse impact on sugar consumption would be atleast 1 million MT in the domestic market. Even the sugar mills are unable to fulfill monthly sales quota allotted to them by the government in the current month. The lower sugar consumption has resulted in decline in sugar prices to close to MSP levels of Rs. 31/kg. These dual factors consequently lead to a pressure on the working capital requirements of sugar mills and thus a rise in the cane dues to farmers.”

With most countries under lockdown globally, the demand has declined resulting in a fall of the global sugar prices. However, the mills exporting sugar are likely to gain on rupee depreciation to an extent. The domestic sugar mills have already contracted close to 3.5-4.0 million MT for export. The exports are likely to resume from June-July 2020. Going forward, with the decline in the crude prices, Brazil is likely to divert more cane towards sugar production, and that could exert pressure on global sugar prices.

“ICRA observes that the cane crushing operations of the UP-based mills are being carried out as usual. While there have been some issues with respect to the shortage of consumables (mainly lime sourced from Rajasthan) during the initial period of lockdown, the mills were able to procure the same with the intervention from the state government. However, in Maharashtra, the crushing operations have been impacted due to issues on harvesting and transportation owing to labour shortage with most of the migrant workers returning to their respective states. This is likely to result in lower sugar production by around 3%-4% in Maharashtra, when compared to earlier estimates of 6.2-6.3 million MT for SY2020”, Mr. Majumdar added.