Covid Impact: Domestic Sugar Consumption Likely To Dip 2 Million Tonnes

The domestic sugar consumption, which has been witnessing near muted growth over the past few years, is estimated to dip by almost 2 million tonnes (MT) in the current sugar season (October-September) owing to the impact of lockdown. This is almost 7 per cent of total production of sugar in 19-20 season which ends in September.

Against the average domestic consumption, comprising all the household and institutional sales viz. soft drinks, ice creams, confectionaries, hotels, sweetmeat shops etc, of about 26 MT, the net consumption is likely to drop to 24 MT in 2019-20 sugar season, National Federation of Cooperative Sugar Factories Limited managing director Prakash Naiknavare told Business Standard.

“The bulk of the slump in the domestic sugar demand is expected to occur during the peak summer season owing to the lockdown,” he said adding even after the lockdown is lifted it would take 3-4 weeks to reenergise the entire sugar supply chain and industry to come back to track.

According to estimates, domestic institutional sales account for 65-70 per cent of the total sugar sales with the remaining emerging from the household segment.

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“Covid is a major blow for the industry, since the natural sugar demand that kicks in from February and peaks in May-June is not happening. Even if the lockdown is lifted next month, the industry would largely miss the bus and fail to make up for the lost opportunity.

According to Indian Sugar Mills Association (ISMA) director general Abinash Verma, the sugar offtake had already dipped by one MT over the past 45 days due to the decrease in market demand coupled with transportation impediments during the lockdown.

He claimed working capital worth nearly Rs 70,000 crore was stuck in unsold and piling up sugar and ethanol inventories with the country’s sugar mills following lockdown. The demand of ethanol, which is mixed in petrol, has also fallen owing to the drastic dip in fuel consumption. Collectively, these elements have dented the cash flow of the sugar mills and impaired their ability to pay cane farmers, thus prompting them to approach the central government for urgent relief.

According to estimates, sugarcane arrears have breached the Rs 15,000 crore level pan India, bulk of which pertains to the mills in Uttar Pradesh, the country’s top sugar producer, and Maharashtra.

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In fact, ISMA has written a series of letters to the central government and even the Prime Minister’s Office (PMO) demanding a slew of measures for the sector, including infusion of liquidity to tide over the current crisis due to the decline in sugar offtake.

“We have suggested that whatever is due from the government to the sugar industry in the form of subsidies, including buffer subsidy, export subsidy, interest of soft loan subsidy etc over the past two years, should be allocated to the food ministry in a budgetary package, and that be released against the claims of the mills,” Verma said.

Besides, the repayment of soft loan, the scheme under which the mills had availed of Rs 7,500 crore to pay farmers, has started from March 2020. “Since, there was 7 per cent interest subvention for one year, we have requested the subvention window be increased by another year,” he said adding it would give cash flow relief of Rs 500 crore to millers in these “very special circumstances.”

The ISMA has also urged the bankers to reduce the working capital margin requirement to 10 per cent on both sugar and ethanol from the current levels of 85 per cent and 75 per cent respectively, since the RBI has also asked banks to consider reducing the margin requirement.

The prices of sugar and ethanol are fixed by the government. As such, there is no possibility of any downside in their realisation and subsequent repayment of bank loans, Verma added.

Meanwhile, the Yogi Adityanath government has written to the union financial services secretary for removing the sugar sector from the negative list of the Reserve Bank of India (RBI) so that the millers could raise fresh capital and settle outstanding.

In his letter, UP sugar industry and sugarcane development principal secretary Sanjay R Bhoosreddy said after the RBI put the sugar sector in the negative list owing to the fluctuations in the sugar prices, the bankers have been reluctant to lend the industry citing tough regulatory norms.