Battling cane arrears and a downward trend in prices amidst sluggish demand and high stocks, the Indian sugar industry has sought Government intervention to kick-start the crushing operation in the new season.
“The sugar industry has suffered substantial losses in the last season. At current prices, it is not sustainable to run the industry,” said M. Srinivasan, Chairman of the Indian Sugar Mills Association (ISMA).
He said millers were facing tough time in raising working capital as bankers, who have put the sugar industry in the negative list, have refused to extend loans if the cane pricing was not rationalised according to the Rangarajan Committee recommendations.
Srinivasan suggested that the Government arrange bank loans to meet the working capital needs and waive interest up to 12 per cent, as in 2007-08, which could give Rs 3,500 crore liquidity to the mills.
He further said the Government should hike the import duty on sugar to about 40 per cent or stop the inflow completely to stabilise the prices.
So far, about 7.5 lakh tonnes of sugar is estimated to have been imported of which, about 3.5 lakh tonnes have been re-exported.
Abinash Verma, Director General, ISMA, urged the Government to facilitate exports of 3 mt-5 million tonnes of sugar over the next eight to 10 months to reduce the inventory build up or else the sugar balance at the end of current year in September 2014 could touch as high as 10 mt.
At current global prices, exports are not viable and the Government should assist exports by providing the transport subsidy as it had done in 2006-07 and 2007-08.
Also, the Government should allow conversion of existing sugar stocks into ethanol, Verma said.
Calling for an implementation of cane pricing reforms as recommended by the Rangarajan Committee, Vice-Chairman of ISMA Ajit Shriram said cane prices in Uttar Pradesh have seen an increase of 75 per cent in the past four years, while the sugar prices have risen by only six per cent during the period.
“The Indian sugar industry is paying nearly twice that of Brazil toward the cane costs to produce one kg of sugar and that’s simply not sustainable,” Shriram said.
In Uttar Pradesh alone, the cane arrears for last season stood at Rs 2,400 crore, while the all-India figures are estimated at Rs 4,000 crore.
Sugar prices have been on the decline over the past few months on ample domestic supplies and bearish trend in global prices.
The ex-factory prices in Uttar Pradesh, which stood at Rs 31 a kg two months ago, now stand reduced to Rs 29.50, while the production cost is estimated at Rs 34-35.
“We cannot have low sugar, high cane price and a viable industry,” Shriram said.
With banks refusing to extend credit, the cane arrears will start building up from day one of the crushing season this year as millers have no money to pay, Shriram said.
“If the UP Government makes its stand on cane pricing clear, we can re-approach the banks for working capital,” Shriram said. The UP Government had fixed cane price of Rs 280 for a quintal last year.
M.G. Joshi, Managing Director of the National Federation of Sugar Co-operative Federation, said the situation was alarming and that crushing would begin only after the mills and farmers decide on quantum of first advance payment in Maharashtra.
Last season, the Maharashtra mills paid an average cane price of Rs 2,650 a tonne, excluding the harvesting and transportation cost of Rs 500/tonne.