Gujarat co-op sugar mills operate even on squeezed margins

Co-operative sugar mills in Gujarat — among the top five sugar producing states with 17 factories that can produce 65,000 tonnes a day — have managed to withstand the squeezed margins.

Unlike UP, Gujarat’s sugar sector is led by the cooperative societies, which operate on a no-profit-no-loss basis. “The cooperative sugar mills work for their own members,” said Ketan Bhatt, managing director of Federation of Gujarat State cooperative Sugar Factories (FGSCSF). “Therefore, they continue crushing despite losses. Margins have not been good in recent months, but mills continue operations.”

The margins were under pressure due to a reduction in sugar prices and the growing preference for imported sugar.

Dilip Bhakta, chairman of Madhi Sugar cooperative, said: “In 2012-13, our sugar cooperative paid an average of Rs 3,120 a tonne to farmers. Sugar prices have come down to Rs 2,650 (factory gate prices) a quintal. As a result, there is a shortfall in margins.”

According to cooperative sources, even if the sugar prices fall significantly, procurement prices do not fall below the fair and remunerative prices (FRP), fixed by the Centre. However, states such as Uttar Pradesh and Tamil Nadu have their own prices for farmers, known as the state advisory price (SAP), usually higher than the FRP. Currently, sugar FRP is Rs 210 a quintal for 2013-14.

Experts said cooperative mills pay high procurement price to sugarcane farmers based on the selling price of sugar. A sugar cooperative society deducts costs such as processing, labour and administration charges from the earnings from sugar sales and pays the entire remaining amount to farmers in the form of procurement price.

“Last year, we paid around Rs 150-350 a quintal more to the farmers than the previous year,” said Mansinh Patel, chairman of FGSCSF. “But this year, looking at the lower sugar prices, the average procurement price may also go down. So, there is an impact on margins due to excess stock and imports.”

Gujarat is among the top five sugar producing states in the country, with 17 factories, which have an installed capacity of sugarcane crushing of 65,000 tonnes a day.