Sugar output in the country rose 27% in the first three months of the current marketing year that started in October, extending a fall in prices below cost caused by a fifth straight year of surplus production through 2014-15 and massive sale of stocks to clear cane dues owed to farmers.
Production in the world’s second-largest producer reached 7.46 million tonne as of December 31, compared with 5.86 million tonne a year before, according to the data by the Indian Sugar Mills Association (Isma). As many as 481 sugar mills started cane crushing by end-December this year, against 485 a year before. However, the output level will narrow gap with 2013-14 in the coming days, as production by major mills — especially in UP —had been delayed by almost a month last year. Already, the gap has narrowed to 27% by December 31, as against 47% by mid-December and 56% until November 30 this year.
Ex-factory prices of sugar in Uttar Pradesh are ruling in the range of R2,600-2,650 per quintal, the lowest in more than three years and compared with the monthly average of R2,800 in November and R2,964 in October. In a contrast, just the cost of cane to produce a quintal of sugar in UP will be as high as R2,810 even at a cane price of R260 per quintal, taking into account the fact that the state government has announced incentives worth R20 per quintal for purchases of the key raw material. This also assumes a cane recovery of 9.25%, the average rate so far this season in UP.
The Allahabad High Court’s order to clear cane dues, piled up due to the state government’s “arbitrary” fixing of cane price way above the benchmark price set by the centre, and banks’ reluctance to offer working capital loans to the loss-making industry have forced the UP mills to offload stocks even in times of a glut.
In Maharashtra, the average ex-factory sugar rate, too, has declined to R2,450-2,500 per quintal, compared with the average price of R2,612 a quintal in November and R2,683 a quintal in October.
“It has become difficult for the mills to pay even the FRP (fair and remunerative price) within the stipulated period as ex-mill sugar prices across the country are substantially below the cost of production,” ISMA said in a statement.
“The industry continues to eagerly wait for the central government’s announcement on continuation of incentive scheme on raw sugar production and exports thereof, which will help improve liquidity with the industry and check the continuous fall in ex-mill sugar prices,” it added. Improved liquidity will expedite clearance of cane arrears.
Maharashtra produced 3.28 million tonne up to December 31, up 47% from a year before. UP sugar mills have also produced more sugar — 1.72 MT, against 1.12 MT in the corresponding period last year.