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The sugar industry has been passing through tough times owing to lower realisation and pressure on profits the last few years, says O. P. Dhanuka, Chairman and Managing Director, Riga Sugar Company Ltd.
Sugar makers, especially those from North India, have been incurring “huge losses” due to a growing disparity between cane and sugar price in the market and a substantially higher input cost, according to him.
Riga Sugar, a Kolkata-headquartered company which operates a sugar factory in Bihar, feels the pinch as much as its counterparts.
Cane price and recovery
“Though the production cost stands at Rs 3,600 a quintal of sugar, the ex-factory sugar price is ruling at Rs 3,100. So, we are losing about Rs 500 on each bag of sugar. How can the industry survive?” Dhanuka asks.
He feels sugar producing companies that have already diversified into power generation and other ancillary businesses are performing better. “However, their sugar businesses in particular is not doing well,” Dhanuka adds.
Cane prices in North India have gone up from Rs 160 a quintal to Rs 250 over the last two-three years. In addition, sugar recovery has dipped below 9 per cent due to bad weather.
“Heavy rainfall in the region impacts both cane production and sugar recovery. Currently, we are able to recover close to 9 per cent,” Dhanuka points out.
Implementation of unfavourable price policies by the State governments also results in a price mismatch in the sugar industry.
Unlike Karnataka, Maharashtra and Gujarat, which keep the cane price low to support the sugar industry, North Indian States make it a point to increase the cane price in “an unscientific manner”.
Sugar factories are supposed to buy cane at the fair remunerative price (FRP) fixed by the Union Government and the price may go up for every 0.1 per cent if the recovery is above 9 per cent.
While Karnataka, Maharashtra and Gujarat enforce buying cane at FRP, despite a better recovery (up to 12 per cent), sugar producers in North India have been paying a State Advised Price, which is much higher the price set by the Centre. “For these three States, cane cost becomes lower compared to the North Indian States,” Dhanuka adds.
Export-import losses
According to the CMD of Riga Sugar, the Union Government’s efforts to promote sugar import by reducing duty from 60 per cent to 10 per cent is turning out to be a major dampener for the domestic industry.
“Despite sitting on stocks of around 80 lakh tonnes, India imported 24 lakh tonnes of sugar between October 2012 and May 2013. Actually, we could have exported the same quantity of sugar,” Dhanuka points out. According to him, India is draining out thousands of crores worth of foreign exchange by importing sugar and piling the domestic stock.
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