Crisis hits Tamil Nadu sugar sector

Abundant supply from Karnataka and imposition of VAT is hitting TN sugar mills

These are bad days for the sugar sector in Tamil Nadu. On the one hand, production has been dropping. On the other, sugar from Karnataka has been sold in Tamil Nadu at a lower price since the state government introduced a five per cent value-added tax (VAT) from November 2014, when the season began.

“Karnataka is dumping sugar in the state and they are able to sell at Rs 2,400 a quintal, while we have an increased cost of at least Rs 150 per quintal because of VAT,” said Palani G Periasamy, president, South Indian Sugar Mills Association.

Earlier, Tamil Nadu mills were able to sell most of its production in the state, besides meeting some demand from Andhra Pradesh, Kerala and West Bengal. According to Periasamy, the mills are not able to sell even in Tamil Nadu and that 80 per cent of this year’s production remains in warehouses.

"Many of the factories are unable to pay even FRP (fair and remunerative price), and the question of paying state advised price (SAP) does not arise," added Periasamy.

It may be noted that the association had earlier said it might not be able to pay this year's SAP of Rs 2,650 for a tonne of sugar cane.

With stocks piling up, the factories might soon face storage issues if the stocks don't move out of warehouses. Companies are under pressure because of a lack of cash flow as well as a rise in sugar stocks. If kept for long periods in warehouses, sugar will lose colour.

Sugar production in Tamil Nadu has been coming down from 2.4 million tonnes in 2011-12 season to 1.9 million tonnes in 2012-13 to 1.4 million tonnes in 2013-14, and it is expected to drop further to 1.2 million tonnes in 2014-15 season.

Periasamy said by this time last year, the sugar mills in Tamil Nadu would have crushed six million tonnes of cane. However, so far this year, only four million tonnes have been crushed. Besides, only two companies have been able to sell - the rest have not seen sales happening this year, he added.

According to Periasamy, financial stress has led most companies to opt for corporate debt restructuring. The state has 43 sugar mills - 25 of them private and 18 are public and co-operative mills. The private mills are managed by 11 companies.

"If the government does not come forward with a quick-fix, the Tamil Nadu sugar sector might face a very serious crisis," said Periasamy.