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Sugar mills in Tamil Nadu are not in an ideal position to begin operations unless the state government comes up with some financial support, according to the association of sugar mills in the state.
The situation erupted after some of the district administrations asked the mills not to begin operations unless they clear Rs 300 crore pending dues to farmers according to the SAP (state advised price) of Rs 2,650 per tonne of cane, arrived at by the state.
Industry players too said they were not in a position to pay the SAP of Rs 2,650 per tonne for sugarcane, announced by the state government, for 2014-15.
Palani G Periasamy, president of South Indian Sugar Mills Association in Tamil Nadu, said the industry had several times informed the state government they would not be able to pay the incremental Rs 600 SAP.
“As per the FRP (Fair & Remunerative Price), we were to pay Rs 2,050 per tonne, but we paid an additional Rs 300 per tonne on top of it. We made repeated pleadings to the state government explaining the inability to pay more, but the state did not pay heed,” he said. He added politicisation of the issue had affected the industry badly.
With the government insisting on payment of incremental Rs 600 more per tonne, the industry had to cough up further Rs 338 crore, leaving little room for investment, said Rajshree Pathy, chairman and managing director of Rajshree Sugars and Chemicals Ltd. She said sugar prices had been falling and there was limited opportunity for exports considering the slack in international demand.
For instance, last year, when the government allowed the industry to export 4 million tonnes of sugar, only 750,000 could be exported. The situation is worse this time with the sugar prices internationally not improving, said SV Bala Subramaniam, chairman of Bannari Amman Sugars Ltd.
Sugar prices crashed by Rs 1,000 per quintal in the last three years, which means a revenue loss of Rs 60 crore for an average sugar mill producing 60,000 tonne of sugar, he said.
Tamil Nadu continues to follow the SAP model for fixing prices, while other major sugar producing states like Maharashtra and Karnataka have moved to the Rangarajan Committee-recommended model of arriving at sugar prices or alternative methods. These states have been offering a subsidy of Rs 360-370 per tonne of cane on FRP, while in Tamil Nadu companies are being asked to pay higher than the FRP fixed by the Centre, said N Ramanathan , managing director of Ponni Sugars (Erode) Ltd.
The state was the third largest sugar producer in the country three years ago, having 43 sugar mills, of which, 25 are private and 18 operates under public and cooperative mills. This year, seven mills had started crushing sugarcane and might even have to stop operations if the administration insists on payment of pending dues carried from the last year.
“The issue is that this is the peak time of realisation. While the average realisation in Tamil Nadu is nine per cent, it keeps varying during the season. Right now, if we crush, the realisation might be more than 10-11 per cent. If we are not allowed to operate now, both industry and farmers would suffer and we may have no other option, but to shut operations,” said Periasamy.
The State, which was once the third largest producer of sugar, has come down to fourth position in the last three years and if this is year also is not good, it might come down to the fifth position, while States like Karnataka has produced almost 3 times more than what they used to earlier, they said.
