The sugar industry in India is set to witness a loss of Rs 1,200 crore in the first quarter of the current crushing season (October-December 2012) as producers’ ex-mill realisation remained substantially lower than the cost of production.
With the state advised price (SAP) payable to sugarcane farmers having been raised 17 per cent in Uttar Pradesh without any assurance of a proportionate increase in sugar price, mills in the state are likely to lose Rs 673.75 crore in the first quarter itself. According to an estimate by the Indian Sugar Mills Association (Isma), 121 operational mills produced 1.93 million tonnes (mt) of sugar for the quarter ended December 2012, with around 8.74 per cent of recovery.
Abinash Verma, director general of Isma, said falling sugar prices in the last quarter would result in higher cost of production than the actual realisation. The cost of production in Uttar Pradesh, India’s second largest sugar producer, works out to Rs 36 a kg with the revised cane price at Rs 280 a quintal. Against that, mills’ realisation currently works out to Rs 32.50 a kg, which means operational units incur a loss of Rs 3.5 a kg for every kilogram of sugar produced in Uttar Pradesh.
In Maharashtra, India’s largest sugar producer, the overall loss during the quarter is estimated at Rs 438.75 crore with 161 operational mills producing 2.9 mt of the sweetener. Although there is no SAP system in the state, largely politicians-linked sugar mills pay incentives to attract farmers. Consequently, the cost of production works out at Rs 32 a kg against the ex-mill realisation at Rs 30.5 a kg, resulting in a Re 1.50 loss for every kilogram of sugar produced by mills in the state.
The recovery from sugarcane stands at around the same as that of last year - about 10.46 per cent. The reason for the slowing pace in recovery revival over last year in Maharashtra is because of partially dry cane arrival to sugar mills. Isma has projected 6.5 mt of sugar production in Maharashtra this year, compared with 9.1 mt in the previous year.
Sugar mills in other states, including Karnataka, are just breaking even or making a negligible profit.
| BITTER PILL (per kg) | |||||
| Particular | Production cost | Ex-mill realisation | Loss | Production (Dec 31, 12)* | Total loss # |
| Uttar Pradesh | 36 | 32.5 | 3.5 | 19.25 | 673.75 |
| Maharashtra | 32 | 30.5 | 1.5 | 29.07 | 438.75 |
| Tamil Nadu | 33 | 31 | 2 | 3 | 60 |
| Source : ISMA, *Lakh tonnes, # In crore | |||||
The 38 operational mills in Tamil Nadu produced 300,000 tonnes of sugar by December 31 in the current crushing season. Against the current ex-mill price of Rs 31, the cost of production works out to Rs 33 a kg, resulting in mills witnessing Rs 60 crore in the first quarter of the current season.
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Data compiled by the Bombay Sugar Association showed that spot sugar prices fell eight per cent between October and December from Rs 3,731 a quintal to Rs 3,431 a quintal. During the period, however, the fundamentals have not changed. Nor has the government come out with any concrete proposal, including a rise in levy sugar or ethanol prices. Hence, the weak sentiment continued in the sugar section throughout this quarter, said an analyst with a leading city-based broking firm.
Meanwhile, sugarcane arrears have shot up to Rs 2,227 crore towards the first week of January this year out of the total payable amount of Rs 4,222 crore. Towards the end of the last season, however, the arrears stood at around Rs 50 crore.