The sugar industry’s woes in Uttar Pradesh are getting worse by the day. Around a half of 90-odd private sugar mills in the state haven’t yet got working capital loans this crushing season, which have forced the factories to sell sugar far below cost to make payments to farmers, senior industry executives said on Thursday.
A drastic drop in global crude oil prices, which usually encourages Brazilians to produce more sugar out of molasses instead of ethanol, has further complicated the problems of the Indian industry, already struggling to export the sweetener in a subdued global market due to exorbitant cane costs, said A Vellayan, president of the Indian Sugar Mills Association (Isma).
Both Brent and WTI crude prices are hovering around a five-year low, having shed more than 40% each this year.
Vellayan said Brazilian sugar supplies may flood the global market by March-April, especially when their currency is depreciating against the dollar, and unless the import window in India is completely shut through a prohibitive duty, inflows of cheaper sugar from that country will hit the domestic industry hard. So the government should raise the import duty on sugar to 40% from the current 25%, he demanded.
Tarun Sawhney, Isma’s vice-president, said since banks are reluctant to lend and the mills are mandated by the UP government to pay farmers bulk of the cane price amount (R240 per quintal) within 14 days of purchases, most of the factories are being forced to sell sugar even in a falling market. Already ex-mill sugar prices in UP have hit three-year lows, falling below even the cost of cane needed to produce the sweetener.
Vellayan also said the liquidity crunch has compelled many mills to get into forward deals to sell sugar at cheaper rates with international traders — most of whom are based out of India — who get much cheaper loans overseas to fund their activities here.
Govt to soon decide on export subsidy. Earlier in the day, food secretary Sudhir Kumar said the government will soon decide on whether to continue an incentive scheme for limited raw sugar exports in 2014-15 marketing year. Kumar also said the government will soon provide the interest subsidy to banks against the loan package of R6,600 crore announced earlier to help mills clear cane arrears.