Shorter crushing season expected on lower cane supply

Suresh P Iyengar Mumbai | Updated on January 16, 2018

Niraj Shirgaokar, Managing Director, Ugar Sugar Works   -  BUSINESS LINE

But Ugar Sugar hopeful of achieving last year’s production of 18 lakh tonnes, says its MD

The new crushing season of the sugar industry is starting on a nervous note with the Central government keeping a close tab on the retail prices that are inching close to ₹43-45 a kg. The cane acreage has fallen by five per cent to 50 lakh hectares. In the season started October, sugar output is expected to drop seven per cent at 23.37 million tonnes (mt) against 25.1 mt recorded last year. Niraj Shirgaokar, Managing Director, Ugar Sugar Works, the flagship unit of Shirgaokar Group, hopes that the Karnataka government does not hike cane prices.

How do you see this sugar season panning out?

Cane supply in the new crushing season is expected to be much lower compared to last year. In Karnataka, we are expecting a 20-25 per cent drop in cane supply this season.

Despite this, we are trying to meet last year production. Last year, we had crushed about 18 lakh tonnes of cane and bagged 20 lakh quintals of sugar.

We hope to achieve the same numbers this year though we may fall short slightly depending on cane supply.

However, the recovery may improve marginally due to the late rain. We are planning to start crushing around November 15 and looking at shorter crushing season of not more than 100-110 days due to shortage of cane against 129 days last season. Similarly, the second unit at Jevargi (Kalaburagi district, Karnataka) it would be 60-70 days against crushing of 90 days done last year.

What is your view on cane prices?

For the last two years, luckily Karnataka has followed fair and remunerative price fixed by the Central government. The FRP has been fixed at ₹2,300/quintal for 9.5 per cent recovery by the Centre this year.

Hopefully, the State government adopts it this season also because our cost of production is close to that level and there is not much room to pay higher price to farmers. Any increase in cane prices will lead to bleeding of sugar producers.

Have you cleared cane arrears to farmers?

We have cleared the entire cane arrears to farmers. There are some pending payments in Karnataka but it has been cleared for our two mills. Going forward, we have made provision for buying cane for this season.

We do not believe in holding back payments unless there is some dispute. If it is not cleared, farmers will also delay cane supply. It is all linked to one another.

Are sugar mills in Karnataka seeking extension in soft loan repayment like in Maharashtra?

In Maharashtra, recovery rate is much high so the FRP payment is higher.

In Karnataka, the average recovery is about 11 per cent, while in belts of Sangli and Kolhapur in Maharshtra the recovery rate is 12-12.5 per cent. So their payments are much higher.

We have availed a soft loan of about ₹42 crore. Our overall loan outstanding is about ₹105 crore. By March 2017, loan outstanding would come down to ₹87 crore. Repayment of soft loan will start soon.

If the (factory gate) sugar prices come down to ₹33 a kg, the margins becomes thin. The industry would be comfortable to pay the farmers if the sugar prices stay at ₹37.

At the current price of ₹35/kg, the cost of production is close to realisation. The average sugar price last year was ₹27/kg. If a factory works on 9.5 per cent recovery, the cost of production would be about ₹2,300 a quintal.

This year the sugar prices are higher, but surprisingly there is not much demand in the eastern States where we sell.

We hope it picks up from the festival season after the lull in last two quarters.

How is the ethanol blending programme helping you?

It is an important part of sugar industry.

The ethanol price of ₹43 per litre is quite remunerative. But the decision to withdraw excise duty exemption will hurt the industry.

The industry has achieved blending of four per cent and should move ahead to target 10 per cent blending.

We recently expanded crushing capacity at Ugar to 15,000 tonnes per day. Our total crushing capacity is 18,500 tonnes per day.

We supplied about six lakh litres per month of ethanol last year. We are thinking of expanding crushing and distillery capacity further in two-three years.

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Published on October 17, 2016
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