Maharashtra may lose No 1 position

Bumper sugar output for the season ending September and a delay in lifting the partial ban on exports could dislodge Maharashtra from its position as a leading sugar producer in the country.

Maharashtra's sugar mills that are already under margin pressure could turn red because of the curb on exports, a senior industry official said.

A ban on sugar exports imposed on June 22 to check the then rising prices has only been partially lifted despite pleas from the sugar industry.

"If the ban on sugar exports is not lifted soon, Maharashtra's lead in sugar production could be permanently affected," said Prakash Naiknavare, managing director, Maharashtra State Co-operative Sugar Factories Federation, which is the apex body representing the state's sugar mills.

Maharashtra, which accounts for 30% of India's sugar production, is estimated to produce 7 million tonne sugar in the year to September 2007.

In the year to September 2007, India's sugar output is seen at 23-24 million tonne, Agriculture Minister Sharad Pawar said last week.

Exports would have helped the industry reduce stocks, thereby mitigating the squeeze in profit margins of the industry, officials said.

Maharashtra's sugar industry, which is largely made up of co-operative sugar factories, is likely to face financial crisis and some of them may turn sick, Naiknavare said.

According to him, the ban on sugar exports came at a wrong time. "The ban was slapped in hurry by clubbing sugar with wheat and pulses, saying that the weighting of sugar on wholesale price index is 5.7 per cent. There is no need of ban, as sugar prices can be controlled through quota release," Naiknavare said.

The ban forced Maharashtra's sugar companies to dishonour their export commitments at the time when the international prices were ruling as high as $450-$500 a tonne.

The steep fall in ex-factory rates in the domestic markets, from Rs 1,650 a quintal in July to under Rs 1,450 currently, has raised the industry's debt-burden.

Considering an ex-factory rate of Rs 1,500 a quintal as base price, the state-run Maharashtra State Cooperative Bank is advancing Rs 1,250 a quintal to factories towards working capital requirement.

This advance will cover the entire estimated output of each of the 181 factories in the state.

"After a payment of Rs 900 a quintal to cane-growers and Rs 165 towards loan repayment, the factories are left with just Rs 185 to run the factory against an average processing cost of Rs 450 a quintal," an official of the federation said.

Therefore, the factories may have to face closure or raise new debt and turn sick under the burden of interest, he said.

Export market for 100-icumsa Indian sugar is limited to Pakistan, Bangladesh, Sri Lanka, Indonesia, and West Asia whose combined imports are 1.0-1.5 million tonne.

Brazil and Thailand were able to make inroads in these markets because of the export ban imposed by India.

Indonesia is expected to import just 700,000 tonne sugar in 2007, while Bangladesh has already started imports of raw sugar from Thailand and Brazil.

Sri Lankan imports are limited to three lakh tonne and Pakistan may not import this year due to higher import duty of 15 per cent and rise in domestic output, the official said.

If the ban is lifted, the country will have to face stiff competition from Brazil in white sugar exports to West Asian markets.

"In this backdrop, the sugar industry in the state will be able to survive only if state government sanctions an export subsidy of Rs 200 a quintal," Naiknavare said.