 "Bearish market puts sugar industry in crisis")
Bearish demand and falling prices have sent the sugar industry into another crisis, despite the partial decontrol announced by the central government last year.
Sugar prices have fallen 12 per cent in Indian markets from their peak last May after the decontrol announcement. In international markets, prices have slipped 20 per cent in the past three and a half months. If mills export raw sugar at the current price, they’d get Rs 4,400 a tonne, less than their cost of production. In the domestic market, they’re losing Rs 3,000-3,500 a tonne in Maharashtra and around Rs 7,000 a tonne in Uttar Pradesh.
Earlier, mills were told the levy quota and free sale quotas were being abolished and the industry would be able to sell all the sugar it produced in the open market. State governments were told to procure sugar from the open market for the Public Distribution System. So, the industry saw a big opportunity.
However, most states contracted for supply with co-operative mills, not private ones. And, exports didn’t happen due to the sharp fall in prices internationally, following bumper production. Bulk buyers, such as makers of cold drinks and ice-cream, kept off contracts for supply, due to the continuous fall in prices.
B B Mehta, chief executive of Dalmia Bharat Sugar, which did enter into a contract with a north-based sugar mill for its partial requirement, said: “Sugar prices are on a downward spiral and the outlook is still bearish.”
With all this, and with state governments setting high cane floor prices to be paid to growers, the industry is in a debt trap. Says Verma: “Mills’ arrears on cane payments to farmers reached Rs 10,000 crore by January 31. If the government doesn’t wake up in time, these would reach Rs 15,000 crore in the next couple of months.”
Sugar prices have fallen 12 per cent in Indian markets from their peak last May after the decontrol announcement. In international markets, prices have slipped 20 per cent in the past three and a half months. If mills export raw sugar at the current price, they’d get Rs 4,400 a tonne, less than their cost of production. In the domestic market, they’re losing Rs 3,000-3,500 a tonne in Maharashtra and around Rs 7,000 a tonne in Uttar Pradesh.
Earlier, mills were told the levy quota and free sale quotas were being abolished and the industry would be able to sell all the sugar it produced in the open market. State governments were told to procure sugar from the open market for the Public Distribution System. So, the industry saw a big opportunity.
However, most states contracted for supply with co-operative mills, not private ones. And, exports didn’t happen due to the sharp fall in prices internationally, following bumper production. Bulk buyers, such as makers of cold drinks and ice-cream, kept off contracts for supply, due to the continuous fall in prices.
B B Mehta, chief executive of Dalmia Bharat Sugar, which did enter into a contract with a north-based sugar mill for its partial requirement, said: “Sugar prices are on a downward spiral and the outlook is still bearish.”
With all this, and with state governments setting high cane floor prices to be paid to growers, the industry is in a debt trap. Says Verma: “Mills’ arrears on cane payments to farmers reached Rs 10,000 crore by January 31. If the government doesn’t wake up in time, these would reach Rs 15,000 crore in the next couple of months.”