The sugar industry in Tamil Nadu is likely to move court over the SAP (state advised price) for cane, following the precedent set by other states.
"This is the year of reckoning for the industry," said a leading industry source here. Industry observers said the sector is facing a combination of adverse factors and any hike in SAP at this point of time could well be disastrous.
Other states have been successful in getting the SAP stayed in court and the industry in Tamil Nadu is confident of being able to do the same. Once the court grants a stay, the onus is on the government to vacate it.
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Sugar units in Tamil Nadu have so far not gone against the SAP as unlike all other states, "the prices have been reasonable," said an industry leader.
Even at the existing rate of Rs 660 linked to a recovery rate of 8.5, the industry is reeling under excess supply situation. Any further increase in SAP can only worsen the industry's woes as it will skew the demand-supply equation further by encouraging more farmers to take to cane. SAP was hiked to Rs 660 last year from Rs 599 the earlier year. While cane prices have been rising regularly, prices of end products are dropping.
By one estimate, total realisation per tonne of cane will be around Rs 995.
If conversion costs are pegged at Rs 325, the SAP, even if maintained at current levels, is an unviable proposition.
Prices of by-products such as molasses have also crashed, leading to a tight squeeze on margins. Thus, rather than increase the SAP, the state government should actually reduce it, goes the industry argument.
With the cost of holding a burgeoning buffer stock - estimated at close to 80 lakh tonne, levy sugar restrictions and cheap imports added on, the industry is evidently under a lot of discomfort.
Cheap sugar from Pakistan and Thailand have reportedly been flooding key deficit markets of Kerala and West Bengal, and the domestic industry can do nothing but appeal to the centre for slapping anti-dumping and safeguard duties.