With sugar prices falling to an all time low of Rs 2,330 per quintal, the lowest ever in the history of Maharashtra, sugar mills in the state find themselves stuck with reduced credit availability to make Fair and Remunerative Price (FRP) payments to farmers. Banks that have lent to mills in the state have lowered valuations, as a result of which mills are faced with the prospect of little money in hand to make payments, senior trade observers said.
With prices touching Rs 2,330 per quintal, the Maharashtra State Cooperative Bank (MSCB) has reduced valuations for sugar mills on its roll, leaving Rs 1,980 per quintal as the pledge rate and Rs 1,230 to make cane payments.
According to Pramod Karnad, prices as on February 25 were Rs 2,430 and fell by Rs 100 per quintal the following day, thus forcing banks to lower valuations. These rates are effective from February 28 onwards, he said, adding that he did not expect the rates to fall further. At a valuation of Rs 2,430 perquintal, an amount of Rs 1,315 is allocated for cane payments. If the prices fall by Rs 100 then the cane payment amount also falls to around Rs 1,240 per quintal and therefore factories can be left with lower amounts in hand.
Karnad said that although the valuations have been lowered, none of the mills that have pledged accounts with bank are faced with the prospect of short margins since the crushing is in full swing and these mills have enough drawing power.
Cane payments are made in 15 days and till then the stocks are still with mills, giving them adequate time to sell, he said.
Some of the millers were apprehensive of short margins and the banks were also facing the prospect of higher provisioning.