Maharashtra sugar mill owners lobby for political intervention on cane prices

The Maharashtra government may intervene to make farmers accept a lower price for sugarcane supplied to mills, given the way these have gone out of line with current market prices. Chief Minister Ashok Chavan has convened a meeting on Thursday with mill representatives on the issue.

With the current cane prices of Rs 240-250 a quintal delivery at the mill gate, the cost of sugar production comes to around Rs 2,700 a quintal. The market price is Rs 2,300 a quintal.

“This has been prevailing for the last one-and-a-half months. Any continuation will severely affect the financials of sugar companies,” said Prakash Naiknavare, managing director of the Maharashtra State Federation of Co-operative Sugar Factories. The CM can also lobby with Union agriculture minister Sharad Pawar to help the mills, he said.

According to sources, over 170 sugar mills are yet to clear the final instalment of last year’s cane payment to farmers. Besides, mills will need to make the first advance payment for the next season (the sugar year is from October to September) early on. Unless a revised cane price is arrived at, payment to farmers will be a major problem, they said.

Mills miscalculated
Mills contracted with farmers at higher cane prices on incorrect output estimates for this season, in anticipation of firm sugar prices through the year. Since the revised higher output estimates, plus nine million tonnes of carryover stocks, brought India into self-sufficiency, prices started falling from the Rs 44 per kg in the beginning of this year. They are Rs 23 per kg now.

The Indian Sugar Mills Association estimated 15 mt of output for the sugar season 2009-10 atn the beginning. Mid-season, it revised this to 16 mt amd later to 18 mt.

According to a report by rating agency Icra, high cane prices made economic sense when these were contracted because of the prevailing expectations of low sugar production and high sugar prices. However, given the current prices, this has resulted in pressure on profitability from the second quarter of the sugar year.

The report further expects conversion margins to come under pressure in sugar year 2009-10, although the impact is not likely to be uniform across regions. The two largest production belts, of Northern India (UP, Uttarakhand, Punjab and Haryana) and Western Maharashtra-North Karnataka, are likely to be the worst hit, given the high cane prices prevailing here. Other regions such as Tamil Nadu and Bihar are likely to be less affected, given that cane was contracted at much lower prices than in the former regions.

Icra forecasts production in 2010-11 to be around 25 mt, marginally higher than the domestic offtake of around 23.5-24 mt. Maharasthra crushed 61.5 mt of cane to produce 7.1 mt of sugar during the current season, as compared to 40 mt and 4.6 mt, respectively, in the last season.