Low molasses prices give liquor firms a high

A fall of over 75 per cent in the prices of molasses in the last eight months may be burning a hole in the pocket of the sugar industry, but it has certainly sent the liquor industry laughing all the way to the bank.

Prices of molasses (a by-product of sugar, which is used to make potable alcohol) have plummeted from Rs 300 a quintal in November 2006 to Rs 70 a quintal now, thanks to production rising 42 per cent to 12.20 million tonnes in the 2006-07 sugar season (October-September).

Liquor companies, which use almost 86 per cent of the molasses produced in the country, have shaved their purchase bill by almost Rs 20 crore in the last one month, industry estimates suggest. If the current trend in prices continues, the savings during the current financial year could be in excess of Rs 250 crore.

Some industry experts say the savings could be higher as prices may fall further, given that there is a bumper sugarcane harvest readying in the fields of Uttar Pradesh and Maharashtra, the country's top sugar producing states.

However, leading liquor producers have not dropped prices in the wake of the fall in molasses prices. The savings, therefore, will directly add to their profits.

"Molasses as a commodity goes through its own highs or lows as far as prices are concerned. We do not consider this to be a major gain for us," said Vijay Rekhi, president (spirits division) of the UB Group and managing director of McDowell Ltd. The group is India's largest and the world's third largest liquor producer.

"Prices of molasses have come down, but as there had been a steep rise and fall in prices in the past three years, this has balanced it out for us," added Abhishek Khaitan, managing director, Radico Khaitan, the country's second largest liquor producer. The cost of producing alcohol for the company has gone down by Rs 5 per litre, from Rs 22 in October to Rs 17 now.

Only the sugar mills are complaining. "The price crash has impacted our profitability," said C B Patodia, president, Uttar Pradesh Sugar Mills' Association, and advisor to the Birla Group of Sugar Industries.