Sugar mills shut to cut losses

Sugar mills in Uttar Pradesh and Maharashtra, the country's two largest sugarcane-producing states, are shutting down operations ahead of schedule to protect losses to some extent.

Of the 120 mills in Uttar Pradesh operating this season, only 28 are still functioning and are likely to continue crushing cane through mid-June. Uttar Pradesh, the largest sugar producer in the country, registered an output of 84 lakh tonnes so far in the 2006-07 (October-September) season.

The shutdown of mills assumes importance in the context of an existing legislation in Uttar Pradesh, which states that mills cannot be closed down under any circumstances if sugarcane in the allotted area is left uncrushed. But to protect the losses, the mills are seeking permission from the respective sugar commissioners to close down operations and divert the cane to smaller mills for crushing.

"There is no problem in obtaining permission for closing down a unit for this season, especially when the cane diversion is assured," said an executive of one of the largest sugar mills in the country, which has ended the season three days ago.

In Maharashtra 100 of the 163 mills are still operating, while the others have shut down their operations for the season. Industry sources said the Maharashtra sugar commissioner had warned the mills not to leave the cane uncrushed in spite of a low recovery.

According to an estimate, about 30 lakh tonnes of sugarcane is waiting to be crushed in the state, with 788 lakh tonnes already crushed. Maharashtra is estimated to produce about 90 lakh tonnes this season.

The mills were earlier told to run up to mid-June because of a bumper cane production across the country. But, low recovery, continued pressure on profitability amid depressed sentiment in sugar prices and a lack of proper legislation to make 5-10 per cent blending of ethanol mandatory have forced many of the mills to end the season.

Sugar prices have remained low on higher production and lack of export demand, resulting in the mills mopping up a loss of about Rs 150 a quintal. The government has tried to compensate the losses through subsidy and lifting the ban on exports, but the measures have hardly helped the mills to recover.

The mills are now gradually shutting down as the sugar recovery level from cane has come down to 6.5-7 per cent across the country due to extreme heat compared with the level of 10.5-11 per cent earlier.

According to B J Maheshwari, company secretary of Dwarikesh Sugar Mills, a production subsidy of Rs 40-50 a tonne of cane crushed is needed to maintain profitability as there is no immediate solution to mounting losses in sight. A meagre transport subsidy and other measures were not going to help much in solving the problems of sugar mills, he added.

"Introducing value-added products is impossible in the short to medium term as it needs huge investment and the long gestation. The immediate measures such as raising alcohol production and power generation would help only those mills, which are selling power to the state governments, to check losses," said Sanjay Tapariya, director, finance, Simbhaoli Sugar Mills.