New Delhi: Mills will end up paying a record R66,000 crore to farmers for cane purchases during the marketing year that started October 1, according to an estimate by the Indian Sugar Mills Association (ISMA). As cane prices soar and returns from sugar sales fail to keep pace, the industry body has pitched for a 60% import duty on raw sugar to avoid the piling up of cane arrears yet again in 2012-13.
Mills had purchased cane worth R60,000 crore in 2011-12 and R50,000 crore the year before, ISMA said.
"With lower sales realisation and higher sugarcane payment to farmers, ISMA has requested the government to increase the import duties on raw sugar from current level to the normal rate of 60% to avoid cane price arrears during the season," the industry body said.
"The difference between the prevalent ex- mill prices and the resultant cost of production in UP could lead to losses to mills to the tune of R4,000 crore, which might reflect in the form of cane price arrears in 2012-13," it added.
UP, the country's second-largest sugar producer, accounts for slightly less than one-third of the overall output. States such as UP fix significantly higher prices of cane, usually aimed at wooing voter bases in the farming community, compared with the benchmark price determined by the Centre.
While the Centre has fixed the fair price of sugarcane for 2012-13 at R170 per quintal after factoring in the cost of production, UP has set the rate at R280 per quintal, up 17% from a year earlier. States are free to fix the cane price, although the rate set by the Centre will have to be the minimum guaranteed price.
Mills have been piling up arrears in recent years as the benchmark prices of cane set by key states have skyrocketed, while sale realisations from sugar haven't kept pace, bleeding their balance sheets. The debt of three key companies —Shree Renuka Sugars, Bajaj Hindusthan and EID Parry — shot up by nearly three-and-a-half times to R23,421 crore in the past four years, showed data by Capitalline.
Profits of sugar mills have also remained subdued due to tight government controls over sales and stocks of sugar, although mills have got a boost since June when sugar prices started moving up on monsoon fears.
Earlier this year, food minister KV Thomas said the government might consider imposing a 20% duty on refined sugar imports while scrapping the tax on purchases of the raw sweetener from overseas after a meeting with agriculture minister Sharad Pawar. The government imposes 10% tax on imports of both raw and refined sugar. The raw sugar import duty was initially scrapped from 60% in 2009-10 when the country had faced a shortage and then a 10% tax was imposed in 2011-12. The government is expected to decide on the import tax on raw as well as refined sugar this month.
Industry experts said raw sugar imports in large volumes would hurt producers in the long run as the country already has adequate supplies. Since sugar sales in the open market are tightly regulated, cheaper dumping of the sweetener from abroad would drag down local prices while cane prices remain high, further hurting the ability of sugar producers to pay farmers for their cane supplies. The cost of white sugar production from the imported raw would be less than R31,000 per tonne, compared with the current mill-gate price of roughly R35,000 a tonne.
The sugar output in India, the world's largest consumer, rose 2% until December 15, showed the ISMA data. However, output in 2012-13 could still be lower than last year's level of 26.2 million tonnes as poor rains in June and July have hurt yield in key producing regions of Maharashtra and Karnataka.
Top sugar industry bodies — ISMA and National Federation Of Co-operative Sugar Factories — have pegged the country's sugar production in the range of 24 million to 24.5 million tonnes, while the food ministry expects the output to be at least 23 million tonnes. The country needs around 22 million for annual consumption.