Sugar mills reiterate need for financial help

Lower realisation than cost of production hits financial performance in April-June quarter, industry seeks govt support

With lesser inventory and cost cuts, sugar companies were able to curtail losses in the June.

According to Indian Sugar Mills’ Association (Isma), total inventory declined to 13.2 million tonnes as on end-June as compared to 14.6 mt at the same time last year and down from nearly 17 mt as of April 1 (compared to 18.6 mt on the same date last year).

Sugar for delivery in September on the National Commodity & Derivatives Exchange declined 4.3 per cent in the quarter, to close at Rs 3,216 a quintal from Rs 3,360 a qtl at the beginning. During the quarter, sugar was traded at least 10 per cent below the cost of production.

Normally, the price increases during the April–October period, enabling mills to clear farmers’ cane arrears and to start the new crushing season afresh from October. This year, the financial performance has been subdued. Those in Uttar Pradesh are yet to clear farmers’ cane payment arrears of Rs 5,740 crore and have threatened not to commence crushing for the season from October, unless price adjustments are made.

“As against Rs 3,300 a qtl average cost of production, average realisation from sugar is Rs 3,000-3,100 a qtl. Recovery from byproducts has also remained lacklustre,” said Sanjay Tapriya, chief financial officer at Simbhaoli Sugars.

Abinash Verma, director-general of Isma, suggests two possible measures. Global sugar production looks higher than previously estimated. The carryover stock in India is estimated at 2.5 million tonnes; plus, production in 2014-15 is forecast higher than consumption. Hence, the government should extend export subsidy by at least a year, till September 2015.

Two, he suggests, oil marketing companies should pay at least Rs 50 a litre for ethanol ex-factory, instead of the current price of Rs 42-43 a litre. The higher price would allow diversion of some quantity for ethanol, to the petrol-blending programme.

“If these measures are not adopted, sugar mills will not be able to pay even the Fair and Remunerative Price (FRP, set by the Centre) to cane farmers,” he said. The government in Uttar Pradesh has declared a State Advised Price for sugarcane which is 27 per cent higher than the FRP at Rs 220 a tonne announced by the Centre.