Sugar mills lobby on output price

Urge the government to allow them to fix their ex-factory price around the cost of production.

Amid fear of worsening financial health this season, sugar mills have urged the government to allow mills to fix their ex-factory price around the cost of production. This comes in the wake of big losses last season, due to a dramatic squeeze in the margin between a higher cost of production and lower ex-factory price.

“With a massive increase in cane prices and general increase in other inputs, our cost of production in Uttar Pradesh in 2011-12 is estimated at Rs 33-34 a kg and in Maharashtra at Rs 29-30 a kg. Ex-mill prices should be allowed by the government to stabilise at these levels. Anything less would mean losses to mills and cane price arrears by January 2012 itself,” said Abinash Verma, secretary-general of the Indian Sugar Mills Association (Isma).

A challenge has been filed by mills against the UP decision and it is to be heard in court tomorrow.

Isma has sent requests to both the ministry of agriculture and the empowered group of ministers (EGoM) on agriculture commodities. The matter is scheduled for discussion in the EGoM meeting tomorrow. The ministers would also consider Isma’s proposal to allow immediate exports. In 2010-11, India exported 2.6 million tonnes of sugar, including unrestricted shipments of 1.5 mt under the Open General Licence. Although the ex-factory sugar price is determined by market forces, the government indirectly controls this by intermittent interventions in deciding monthly releases. Mills also incur excessive loss on the compulsory levy quota of 10 per cent to feed the Public Distribution System, the price for which is fixed by the government, currently at Rs 18 a kg.

During most of the last sugar year (October 2010-September 2011), the ex-factory price of sugar was quoted Rs 200-300 per quintal lower than the cost of production. As a consequence, the net loss of Shree Renuka Sugars plunged to Rs 57.3 crore for the quarter ended September as compared to a net profit of Rs 8.1 crore in the same period last year. The net loss of Balrampur Chini and Simbhaoli Sugars was reported at Rs 39.4 crore and Rs 16 crore as against Rs 78.3 crore and Rs 39.2 crore in the corresponding quarter of the previous year, respectively.

This year, a repetition of losses on this account are expected. Millers estimate a 17-18 per cent rise in average cost of production from the earlier Rs 27-28 a kg, due to a spurt in cane prices across the country. In Uttar Pradesh, the second largest producer, the government raised its State Advised Price nearly 20 per cent, to Rs 240-250 a quintal this year. A similar increase has been seen in Maharashtra, India’s largest producer. Since mills are legally bound to procure cane from farmers at a price decided by the government, they want price protection of the final output.

Overall sugar output in India is estimated this season at 25.5 mt as against 24.2 mt last year. With an estimated carryover stock of nearly five mt, total supply works out to nearly seven mt more than the estimated consumption of 22.5 mt.