Lockdown: Working capital woes hit sugar mills as consumption dips

Industry seeks allocation of special fund to clear pending export subsidies

The extension of the coronavirus lockdown till May 3 has compounded the working-capital woes of domestic sugar mills owing to the steep fall in consumption, export hurdles, and a sudden dip in realisation in power co-generation.

“Our working capital is getting exhausted because of the slow offtake of sugar to the tune of more than 30 per cent, while the mills are mandated to make full payment to sugarcane farmers,” Vasudev Bannerjee, Simbhaoli, Sugars told Business Standard. He also rued that there was no central or state government support to the sugar mills at this critical juncture.

All these metrices are expected to accentuate the sugarcane outstanding.

According to a report of CARE Ratings, the pandemic has curtailed sugar consumption due to curbs on social gatherings and outings, and also a reduced offtake from companies making beverages and other fast-moving consumer goods.

“This has even led to a fall in domestic and international sugar prices recently. The export of sugar is also likely to be affected due to a fall in international prices and also on account of supply-chain disruptions at various ports,” it forecast.

 

 

The increased inventories with mills and delays in receipts from cogenerated power sales from state discoms are expected to intensify their working-capital requirements and result in mounting cane arrears, which will put pressure on liquidity in the near term, the report said.

FMCG and beverage companies are either working on reduced capacities or have suspended operations. In the current scenario, CARE Ratings expects domestic sugar consumption falling to almost 25 million tonnes (mt), as against 26 mt expected previously. 

“The dip in domestic sugar demand, along with no export, has created a tough situation for the industry. Nearly all the mills have exhausted their working capital since the cash flow has been severely hit over the past few weeks of the lockdown,” UP Sugar Mills Association (UPSMA) Secretary Deepak Guptara told Business Standard on Wednesday.

UP is the country’s top sugar producer and is expected to produce nearly 12 mt of the commodity in the current 2019-20 crushing season, of the domestic output of about 26.5 mt.

Recently, the UPSMA had written the Union food and public distribution secretary about the industry facing “most adverse and challenging” circumstances. It asked the central government to urgently clear buffer subsidies, apart from creating a special fund to pay export subsidies.

The association talked of the steep decline in ethanol sales owing to lower demand from oil companies and urged the Centre to consider increasing the blending percentage to 15 per cent from the current 10 per cent, in UP, where ethanol is abundant.

The Indian Sugar Mills Association (ISMA) had also asked oil-marketing companies (OMCs) to reallocate ethanol to deficient depots.

The industry has suggested that the National Bank for Agriculture and Rural Development be advised to release interest subvention due under the Soft Loan Scheme of the Centre.

Meanwhile, the CARE report said with the fall in crude oil prices, the expectation that Brazil would increase sugar production, and the Covid-19 pandemic, there has been a decline in global prices.