Maharashtra sugar mills in a spot as bank squeezes funding

Many cooperative sugar mills in Maharashtra are finding it difficult to meet their commitments to pay cane growers due to curtailment in finance by the apex cooperative bank. The reason: They have fallen short on margins on advances.

Short on margin is the difference between advances released and the realisation by the mills. This has happened due to the dip in sugar prices.

Industry sources told Business Standard the mills had announced a first advance to cane growers of Rs 2,500 per tonne due to higher prices of Rs 3,200-3,400 per quintal at the beginning of the crushing season in November. However, prices have since fallen to Rs 2,633 per quintal. Against this, upfront funds made available by the state cooperative bank to the mills are at Rs 2,252 per quintal. So, mills are finding it difficult to make the second payment to farmers.

At least 33 out of 111 cooperative mills participating in the ongoing crushing season are short of margins on advances. The Maharashtra State Cooperative Bank (MSCB) has curtailed advances to these mills.

An official of the Federation of Cooperative Sugar Factories in Maharashtra, which represents 170 mills in the state, recalled what had happened in April, when the average realisation was Rs 2,668 per quintal and the benchmark for advances fixed by MSCB was Rs 2,480 per quintal. MSCB had made available Rs 2,108 per quintal upfront, 85 per cent of the benchmark price. Mills were expected to meet expenses on cane price, processing and administrative expenses, creating a net short margin of Rs 200 per quintal in the mills’ accounts with the bank. The state government intervened and MSCB revised the benchmark price on May 12 from Rs 2,480 per quintal to Rs 2,650 per quintal, 85 per cent of which was made available upfront. This helped mills to escape from a disastrous situation.

Prakash Naiknavare, managing director of the Federation said MSCB should not revise the benchmark price often, because the volatility in sugar prices had been high in the recent past. “Instead ,the bank should stick to the present benchmark price and keep a watch on market prices,” he added.

Meanwhile, the state government has asked sugar mills not to conclude the crushing season until the remaining standing cane of 6,00,000 tonnes is crushed. So far, 141 mills — 111 cooperative and 30 private mills — have crushed 61.18 million tonnes to produce 7.08 mt of sugar. The season is expected to end by June 8, when a total 62 mt of cane would have been be crushed to produce 7.2 mt of sugar, much more than the 4 mt produced in 2008-09.

A state government official told Business Standard: “Mills have been asked to crush the entire standing cane as a social obligation. The government will not give any grant for less recovery. In any case, average recovery has increased to 11.58 per cent in 2009-10 against 11.44 per cent in 2008-09.”