Shree Renuka Sugars’ cane buying costs swallowed the entire return from producing sugar.
Sugarcane procurement by Shree Renuka Sugars (SRS) in the 2010-11 sugar season was at a price far higher than its competitors among major sugar producers. So much so that their cost of procurement was equal to the average realisation of the industry from the sale of sugar.
This average realisation was Rs 28,000-29,000 per tonne. SRS paid an average price of Rs 2,831 per tonne of cane procured. The industry’s average realisation from crushing is around 10 per cent, meaning for every 100 tonnes of cane crushed, 10 tonnes of sugar is produced.
Renuka’s cost of procurement was way ahead of the second- highest, Rs 2,647 per tonne, paid by Simbhaoli Sugars Ltd.
Sugarcane procurement prices are set at various levels. Commonly, the Union government announces a fair and remunerative price (FRP) for cane every year. For 2010-11, it had set the FRP of Rs 1,450 per tonne, marginally up from Rs 1392.50 per tonne in the previous season. Sugar mills then negotiate with farmers in each region to arrive at a uniform price, with the benchmark recovery rate of 9.5 per cent and considering the FRP as a minimum price.
In major cane-growing states such as Uttar Pradesh, Maharashtra, Karnataka and Tamil Nadu, the respective state governments fix the minimum cane price in consultation with sugar mills, and it always remains higher than the FRP. In UP, for instance, the government announced Rs 2,050 per tonne, with a 9.5 per cent recovery rate (Maharashtra’s recovery rate is considered 11.5 per cent).
“The company plans to deleverage the balance sheet by increasing the operating cash flows through effective risk management and operating the Indian refinery facilities at full capacity. The company plans to complete the turnaround of the Brazilian acquisition,” says an SRS report. Sugar mills across the country have started negotiating cane prices with farmers. According to Sanjay Tapriya, director-finance of SSL, the cane price is likely to remain slightly higher this time.
| A BITTER-SWEET TALE Company-wise sugarcane cost (Rs per tonne) | |||||
| Company | FY 2007 | FY 2008 | FY 2009 | FY 2010 | FY 2011 |
| Bajaj Hindusthan | 1,285.20 | 1,009.60 | 1,395.60 | 1,493.50 | 2,471.70 |
| Uttam Sugar Mills | 1,331.40 | 1,216.00 | 1,274.80 | 2,345.30 | 2,237.80 |
| EID Parry | 1,155.10 | 1,125.90 | 1,244.80 | 1,527.90 | 1,844.20 |
| Simbhaoli Sugars | -- | ||||
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Mills’ profitability is set to remain under pressure in this year, too. During the June quarter, they incurred a loss of Rs 2-2.50 a kg for each tonne of sugar production because of the government’s control over pricing. Against an average cost of sugar production at Rs 28.50 a kg, mills were forced to sell the sweetener at Rs 26.50 a kg.
Naveen Mathur, associate director of Angel Broking, said effective steps such as decontrol and further export permission would improve domestic mills’ operation in the coming quarters.
Total sugarcane output in India was estimated at 336.7 million tonnes in the sugar year 2010-11, as compared to 292.3 mt in the previous year. During the coming season, output is forecast to surpass the record of 355.5 mt in 2006-07. Sugar production in India for sugar season 2011-12 is expected to be around 26 mt, about 8.3 per cent higher than the previous year, while consumption is likely to grow at three per cent annually to 23 mt this year.