Mixed opinion on timely start to cane crushing operations

With the price gap between sugarcane and domestic sugar at a 30-year high, there appears to be a mixed opinion within the domestic sugar industry as to whether mills will begin crushing on time for the 2015-16 season (October-September).

Mounting arrears As of mid-July, mills owed dues worth ₹14,700 crore to cane farmers across key-producing States such as Uttar Pradesh, Maharashtra and Karnataka. Private mills in UP owed almost half the amount with arrears of ₹7,200 crore.

The industry is facing a liquidity crunch due to surplus production which has depressed domestic prices.

“It’s difficult to answer at this point and will depend on whether banks provide loans for working capital requirements or not. Mills will be challenged to start on time. For instance, in Maharashtra and north Karnataka, where mills pay an advance for harvesting and transport charges, they are not being able to service these payments,” said Abinash Verma, Director-General, Indian Sugar Mills Association (ISMA).

He added that maintenance operations were ongoing across mills in UP but budgets would likely be scaled back.

Production costs According to an independent study by McKinsey released here on Tuesday, the gap between the procurement price of sugarcane – the Centre’s Fair and Remunerative Price (FRP) of ₹220/quintal – and realisation of ₹28/kg on average for the 2014-15 season is the highest in 30 years.

Ex-mill prices had slipped to below ₹20/kg in Maharashtra before firming over the last few days while in UP it ranged between ₹22 and ₹22.50/kg. The respective costs of production in the two States are ₹29-29.50/kg and ₹31/kg.

“We are awaiting clarity on the pricing issue in Maharashtra since farmers are the most important part of the supply chain and are owed ₹2,800 crore at present. It sends the wrong signal if there’s no clarity,” said Rohit Pawar, CEO, Baramati Agro.

While there have been positive signs emerging from the Centre, Pawar hoped that concrete steps will be taken ahead of the crushing season that begins by October 15 in the State or latest by Diwali (November 11 this year).

“We don’t want a situation to arise where crushing is delayed as it was in parts of Karnataka last year,” he added.

Gaurav Goel, Managing Director, Dhampur Sugar Mills, was optimistic about crushing beginning on time in UP since both the State and Centre had been sensitised about the problems crippling the beleaguered industry.

“I think crushing will begin on time since the issue of pricing should be sorted out earlier. The crop is good due to the plentiful rain in western UP and both Governments are now aware of the problems. A delay would not help either farmers or mills,” he said. Sugar output touched 28.3 million tonnes (mt) in 2014-15 and mills are likely to produce 28 mt in the upcoming year with consumption pegged at 25.2 mt.

Supply-demand mismatch The McKinsey report highlighted this supply-demand imbalance and suggested that excess stock of around 5 mt could be cleared through exports over a two-year period or via a government agency mopping up 2.5 mt of the surplus which can b exported over three years with an obligation cover exporters’ losses.

It also suggested the setting up of a price stabilisation fund while advocating the maximisation of revenue from by-products like ethanol by reducing restrictions or increasing blending norms.

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