Jaggery producers face sharp increase in production cost on high cane prices

They've passed the hike on to consumers due to winter season demand, but their margins may get squeezed after Makar Sankranti

With sugar mills in Uttar Pradesh starting to pay farmers 10 per cent more for cane procurement as per the state advised price (SAP) announced by the state government, jaggery manufacturers (kolhus) are bracing for a sharp increase in the cost of this raw material in order to ensure it reaches their factories.

The government of Uttar Pradesh revised the cane SAP by 10 per cent for this year, after three years of keeping it unchanged. With this revision, sugar mills are required to pay Rs 305-315 a quintal to farmers for the cane they procure during the current season, as against the Rs 280-295 they were paying earlier. Kolhus will, therefore, have to pay the same price of Rs 305-315 a quintal for cane.

Faced with squeezing margins due to the high cost of raw material, kolhus have raised jaggery prices by 10 per cent this year. The upward revision in the price is, for the time being, being absorbed by consumers due to the high price of sugar and rising seasonal demand due to "makar sankranti". Normally, during the winter, the demand for jaggery moves up for its use as cold-resistant product.

"Jaggery prices are up 10-15 per cent this year due to a spurt in raw material cost and seasonal demand. Estimates of lower production this year on forecast of low sugarcane output have supported the move," said Arun Khandelwal, President, Federation of Gur Traders, a Muzaffarnagar (Uttar Pradesh)-based representative body for jaggery manufacturers and traders.

Meanwhile, jaggery manufacturers pay Rs 250-260 for a quintal of sugar cane to farmers as compared to Rs 305-310 a quintal paid by sugar mills. Since farmers need to clear their fields for wheat sowing, they sell cane cheaper to jaggery manufacturers. However, cane supply to jaggery manufacturer might reduce if farmers are able to transport sugarcane to distant sugar mills, in order to fetch higher price.

"Even jaggery units would not mind paying farmers higher as prices of both jaggery and sugar remained up this year. Hence, a price war between sugar mills and jaggery manufacturers cannot be ruled out by the end of the current cane harvesting season," said Khandelwal.

For early variety of cane, sugar recovery remained higher this year by 1-1.25 per cent, according to trade sources. This meanns sugar mills are achieving recoveries of 10.5-10.75 per cent this year as compared to 9.50-9.60 per cent earlier.

"Currently, jaggery demand is very high due to 'makar sankranti' which falls on January 14 every year. Once the seasonal demand is over by mid January, a correction in jaggery will follow and prices may decline to Rs 2,400-2,500 a quintal by January-end, from the level of Rs 2,725 a quintal currently.

Traders, however, estimate a decline of about 20 per cent in jaggery output this year, on lower cane availability across the country. Barring Uttar Pradesh, cane output remained lower this year in major producing states such as Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Gujarat.

Khandelwal puts jaggery output in India between 7-7.5 million tonnes this year as against 9-9.5 million tonnes last year.