Cane arrears drop, but industry fears slip back

The Central government on Thursday took credit for bringing down sugarcane price arrears to relatively lower levels than the previous sugar season even as industry sources felt that the situation would not last long as sugar prices have fallen drastically rapidly.

An official statement issued here said the sugarcane dues came down to ₹7,826 crore as on date compared to ₹8,982 crore in the corresponding period of the previous season, notwithstanding higher production and falling sugar prices.

The arrears have been relatively low because of the measures taken by the Centre and governments in sugar producing States, it said.

“Even the cane price arrears for sugar season 2016-17 have been reduced to only ₹52 crore (on FRP basis) and ₹1,076 crore (on SAP basis) against cane dues payable of ₹ 57,608 crore,” the statement said.

According to rating agency ICRA, sugar prices have been falling since December last year as the fresh stocks have started arriving in the market and also because the production is anticipated to be higher than the industry estimates. Upward revision in sugar production estimate along with most mills liquidating the produce to repay cane payments resulted in a correction in sugar prices.

“The prices are more likely to remain under pressure during the current quarter and then stabilise in the coming quarter as the closing stocks are likely to remain comfortable at around 5-5.5 million tonnes,” ICRA said.

“Whatever may be the situation now, the arrears are feared to go up from now on as dropping ex-mill prices of sugar are pushing the mills into losses,” said an industry source, who said sugar prices have come down by ₹6/kg since the beginning of the new season on October 1 last year.

“While production cost is about ₹35/kg, the ex-mill price is ₹32 in Uttar Pradesh and ₹29 in Maharashtra,” he said.

“This doesn’t augur well for the industry,” the source said.

“Based on the current cane-crushing trends, we estimate domestic sugar production at around 26 million tonnes against our earlier estimate of 25 million tonnes given in December 2017.

This will translate into an increase in sugar production by 28 per cent in sugar year 2018 from 20.30 million tonnes in SY2017, mainly driven by an expected recovery in production in the key sugar-producing States — Maharashtra and Karnataka — supported by relatively better monsoons during 2016 and 2017,” said Sabyasachi Majumdar of ICRA.

Sugar production in Uttar Pradesh is also expected to touch a record 10.2 million tonnes this season as higher acreage under better cane variety was resulting in higher yields and recovery rate, Majumdar said.

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