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) due to mills’ ex-mill realization sustainably remained substantially lower than the cost of production.
With the State Advised Price (SAP) payable to sugarcane farmers raised 17% in Uttar Pradesh without any assurance for the proportionate increase in sugar price, mills in the state is likely to lose Rs 673.75 crore in the first quarter itself. According to an estimate by the apex trade body the Indian Sugar Mills Association (ISMA), 121 operational mills produced 19.25 lakh tonnes of sugar for the quarter ended December 2012 with around 8.74% of recovery.
| Bitter pills (per kg) | |||||
| Particular | Production cost | Ex-mill realisation | Loss | Production (As on Dec 31, 2012)* | 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 |
Abinash Verma, Director General of ISMA said that continuous falling sugar prices in the last quarter would result into higher cost of production than the actual realization.
According to him, 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 realization currently works out to Rs 32.50 a kg which means operational units incur a loss of Rs 3.5 a kg for every kg 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 29.07 lakh tonnes of the sweetener.
Although, there is no SAP system adopted 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 realization at Rs 30.5 a kg resulting into a Re 1.50 loss for every kilogram of sugar produced by mills in the state.
The recovery from sugarcane stands around the same as that of last year which was about 10.46%. The reason for slowing pace in recovery revival over last year in Maharashtra is because of partially dry cane arrival to sugar mills. ISMA has projected 65 lakh tonnes of sugar production in Maharashtra this year as compared to 91 lakh tonnes in the previous year.
Sugar mills in other states including Karnataka are just breaking even or making a negligible profit.
The 38 operational mills in Tamil Nadu produced 3 lakh tonnes of sugar by December 31 in the current crushing season. Against the current ex-mills price of Rs 31 the cost of production works out to Rs 33 a kg resulting into mills witnessing Rs 60 crore in the first quarter of the current financial year.
Data compiled by Bombay Sugar Association showed that spot sugar prices fell 8% between October – December quarter from Rs 3,731 a quintal to Rs 3431 a quintal. During the period, however, the fundamentals have not changed. Nor the government has come out any concrete proposal including a raise in levy sugar or ethanol prices. Hence, the weak sentiment continued in 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.
