Sugarcane arrears touch Rs 6,500 cr on global market glut, export woes

International sugar market glut coupled with export market squeeze and persistent domestic factors have resulted in the build up of sugarcane arrears even as the 2018-19 crushing season is midway.

The arrears, including the carryover of the previous 2017-18 crushing season, are estimated at Rs 6,500 crore in the two key sugar producing states of Uttar Pradesh and Maharashtra.

They together account for more than 50 per cent of the annual production. 

UP alone accounts for Rs 4,000 crore of arrears comprising almost Rs 2,000 crore and Rs 4,000 crore for the 2017-18 and 2018-19 seasons, respectively.

All India Sugar Trade Association (AISTA) chairman Praful Vithalani told Business Standard while the accumulation of arrears was a “seasonal phenomenon” owing to fresh production of sugar starting from October onwards, the export market had been lower than expected earlier.

The global sugar market sentiment continues to be muted with sugar futures indices bidding goodbye to 2018 calendar at decadal low levels owing to supply glut, perpetuated primarily by the top two suppliers India and Brazil.

Meanwhile, AISTA Chief Executive Officer R P Bhagria claimed the export market squeeze, especially in Maharashtra, was caused by the short margin norm. Short margin is a condition when sugar prices fail to cover advances extended to mills by banks. 

Therefore, mills are required to pay the shortfall to banks before actual sugar sale starts. Any default renders their loan accounts as bad debt after 90 days and they could become ineligible for loans.

“The short margin issue is hitting our sugar exports to a large extent,” Bhagria said.

Besides, he informed that China, which has a huge raw sugar import market of 4-5 million tonnes (MT), was expected to announce its current season quota in the next few weeks, which would ease the situation. Indian sugar is also exported to Bangladesh, Sri Lanka and the African countries.

Additionally, the domestic sugar prices have also been lying low over the past few weeks, further impairing the profitability of mills.

Recently, Union highways minister Nitin Gadkari had advised sugar mills against approaching the Centre for grant to resolve the sugar crisis. 

He noted that mills could survive only if they also adopted ethanol production for sustenance and facilitated remunerative prices to farmers as well.

In UP, the Yogi Adityanath government had set the deadline of November 30, 2018, for private mills to settle arrears and even announced a soft loan package worth Rs 4,000 crore, subject to a set of eligibility criteria, for the beleaguered sugar companies to pay farmers.

The state government had acknowledged a crisis in the sector due to glut in the international markets, low sugar prices and bleak outlook. 

Sugarcane sector directly impacts 4 million farmers and generates economy worth almost Rs 50,000 crore through sugar, jaggery, ethanol, bagasse and cogeneration, among others.

Recently, UP sugarcane and sugar development minister Suresh Rana had written to Union food minister Ram Vilas Paswan demanding increase in the state’s sugar sale quota to 1.1 MT and hike in the ex-factory sugar sale price from Rs 2,900/quintal to Rs 3,250/quintal.