Agri Business

Depressed sugar market threatens mills’ survival in UP

Tomojit Basu New Delhi | Updated on March 13, 2015 Published on March 13, 2015

Mawana Sugars Ltd announces closure of its three mills in Uttar Pradesh citing inability to continue operations owing to cane arrears, liquidity crunch, and depressed prices of sugar locally as well as globally.

With industry major Mawana Sugars Ltd (MSL) announcing the closure of its three mills in Uttar Pradesh a day earlier citing inability to continue operations, the sugar industry fears that the cycle of cane dues owed to farmers, loss of liquidity with banks unwilling to extend working capital loans and depressed prices of the sweetener locally and globally can threaten the survival of many other mills.

“The company was unable to pay cane arrears which were more than the value of their sugar stocks. Banks had not given them any working capital this year or the year before. This can become a trend since there are others who will find it difficult to pay dues when one’s creating liabilities by crushing more cane. The pricing policy needs to be fixed,” said an industry source.

MSL, the sixth largest private sector sugar manufacturer in India, was formed in 2003 and its units were present in Mawana, Titawi and Nanglamal in key cane growing belt of western UP. The closure was announced in a letter to the Principal Secretary of State Sugarcane Development Department. Industry sources stated that others facing the crunch include Modi Sugar Mills.

“I don’t think there’s a single company making any money in UP at present,” Tarun Sawhney, Vice-Chairman and Managing Director, Triveni Engineering and Industries Ltd, told BusinessLine on the sidelines of a press conference held by the Indian Sugar Mills Association (ISMA) here on Friday.

Solutions offered

The association put forward five solutions to check cane arrears of over Rs 15,000 crore, a figure that overshadows the record dues of Rs 13,274 crore registered last March. These include re-inserting Clause 3(B) of the Sugarcane Control Order that would put the onus of price differential between the Centre’s Fair and Remunerative Price (FRP) and State Advised Price (SAP) on the individual State government as in the case of paddy and wheat.

It also suggested the creation of a buffer stock of 20 lakh tonnes (lt) for the PDS which could draw excess sugar out of the market and financial restructuring of the sugar industry including the conversion of working capital loans to term loans, re-scheduling the period of repayment etc.

“Unless there is liquidity support by way of interest-free loans or financial restructuring, meeting obligations will be an issue later in the year,” said A. Vellayan, President, ISMA.

Other suggestions included extending the Centre’s recent decision of Rs 4,000/tonne export incentive on raw sugar to white sugar as well as, either an incentive of Rs 7-8/litre of ethanol or the removal of central excise duty of fuel-grade ethanol, both steps that could take out between 1-2 million tonnes of excess sugar.

Sugar prices (ex-mill) are currently reigning at Rs 22/kg in Maharashtra and Rs 25/kg in UP, India’s two largest sugar producing States, which reflect a decline of at least Rs 5/kg since the season began on October 1.

“The sugar sale side has been decontrolled and so prices are determined by market forces. But the raw material price, which is 75 per cent of the cost, is controlled by the Government as well as the quantities to be crushed. Increasing cane prices and a determining a fixed quantity to be bought are not right since the sugar being produced cannot be sold,” said Abinash Verma, Director General, ISMA.

The ISMA estimates arrears to touch Rs 17,000 crore by the end of March and the Centre has pegged sugar output for 2015-16 at 26.5 million tonnes. Domestic consumption is estimated at 24.8 mt.

Published on March 13, 2015
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