Indonesia, Afghanistan buy more Indian sugar

#GS3 #ECONOMY #EXPORT DUTY 

Context

According to the Indian Sugar Mills Association (ISMA) Major destinations for sugar exports from India this season (October 2020 to September 2021) are Indonesia and Afghanistan.

Current season’s exports

  • 29.72 lakh tonnes of sugar have been exported so far this season compared with 30.64 lakh tonnes during the same period in the previous season.
  •  However, the current season’s exports include 4.48 lakh tonnes exported under the Maximum Admissible Export Quota of 2019-2020 season, which was extended till December 31, 2020.
  •  During the last season, major sugar exports were to Iran and Afghanistan.
  •  This year, with currency restrictions, exports to Iran were affected.
  •  Also, with lower output in Thailand, Indian exports to Indonesia have picked up.

Export Subsidy on Sugar

  •  In November 2020, the central government announced that it is not considering extending its export subsidy for the 2020-21 sugar season.
  •  The sugar industry has reacted strongly to this announcement.
  •  It has warned of a ‘vertical collapse’ in the sector due to excessive stock, whose ramifications can be felt in the years to come.

Supporting exports before the start of the season

  •  At the start of the (October-November) sugar season, the industry draws up its balance-sheet.
  •  It takes into consideration the expected production, the carry forward stock of last season, minus domestic consumption and exports if any.
  •  This balance sheet decides the availability of sugar for the next season.
  •  There is an unusually high opening stock available for the next season (season of 2021-22).
  •  Without an export incentive like a government subsidy, this will result in a vertical collapse of the sector.

How will this inventory be corrected?

  • One way of correcting this inventory is by promoting export.
  •  Sugar mills export both white as well as raw sugar.
  •  If the export is promoted, the stock would be reduced, providing the mills a healthy inventory as well as liquidity from exports.

Why are mills reluctant to export sugar without a subsidy?

  •  The mills’ reluctance stems from the gap between the cost of manufacturing and the current price of raw sugar in international markets.
  •  The price mismatch has ruled out any export prospects as this would lead to a further loss for the mills.
  •  Ironically, mills are facing this problem at a time when Indian sugar has made its mark in the international markets.

How did the mills manage to export sugar last season?

  •  The record export level last season was possible only because of the subsidy programme offered by the central government.
  • Mills got a transport subsidy of Rs 10.448 per kg of sugar exported.
  •  This subsidy had helped the mills bridge the difference between production costs and international prices.
  •  The Union Ministry of Food and Civil Supplies was strict about compliance, which led to mills toeing the line in terms of exports.
  •  Higher demand in international markets had also seen Indian mills reporting good exports.
  •  But now, the central government ruled out any extension of the subsidy scheme as the international sugar scenario is currently stable.

Have last season’s exports helped mills generate enough liquidity?

  •  No, the central government is yet to release the export subsidy due to the mills and the total due is as high as Rs 6,900 crore.
  •  Individual mills had taken loans to facilitate exports and now they have to pay interest to the banks.
  •  The unpaid interest of Rs 3,000 crore for maintaining buffer stock has also hit hard the balance sheet of mills.
  •  The pandemic has further delayed the release of subsidies.
  •  This has led to many mills not having sufficient liquidity at the start of the season.

Diversion to ethanol

  • Recently, the central government has announced a Rs 1-3 per liter rise in the procurement price of ethanol.
  • This is the second signal given by the government to mills to divert cane towards production of ethanol rather than sugar.
  • In 2019, the central government had announced an interest subvention scheme for mills to augment production of ethanol.
  • But diversion to ethanol will require more capital and time to materialise.

SOURCE: THE HINDU 

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