Sugar firms expect steep fall in cane prices next season

Sugar industry analysts predict a steep fall in prices of benchmark cane to Rs 20 a quintal in the next sugar season, starting October 2010, due to an “excessive” expansion in area under cultivation after two years of good returns.

The current year started with a price of Rs 190 a quintal, on fears of a fall in output, way above the ‘fair and remunerative price’ of Rs 130 a quintal fixed by the central government and the ‘state advised price’ (SAP) of Rs 165 a quintal fixed by state governments. As the season progressed, cane prices jumped to Rs 260-265 a quintal in Uttar Pradesh and to Rs 280-310 a quintal in Maharashtra, the country’s second-largest and largest producers, respectively.

This surge in prices began in 2008-09, when cane production was reported to have decline by about 15 per cent. Mills in UP began offering incentives at the time of sowing and a price well above the then SAP of Rs 145 a quintal. The current season again began with an anticipation of less area having been planted, leading to a trend, exacerbated by government miscalculation (sugar stocks and prices are controlled by state fiat) that prices will go up.

Retail prices rose to Rs 44 a kg by early January, but then began falling; these are now Rs 30-31 a kg. However, says G S C Rao, executive director of New Delhi-based Simbhaoli Sugar Mills, farmers in all producing states are keen to plant cane this year. So much so, he said in a recent conference call, that cane prices may well drop to Rs 200 a quintal when the next harvest comes in.

Other producers and analysts believe this, too. Angel Broking, a Mumbai-based commodity and equity broking firm, has estimated cane production to rise next year by 30 per cent, due to a 21 per cent increase in acreage and a 7 per cent rise in yield. It estimates sugar production will shoot up to 26.7 million tonnes next year as against 16.3 mt in the current year.

The current crushing season ends in a fortnight and it saw tough competition from jaggery and khandsari units, which offered higher prices for the produce, forcing sugar mills to follow. Farmers were not supplying cane below Rs 260 a quintal. Says B J Maheshwari, director of Dwarikesh Sugar Industries: “Since gur and khandsari prices also shot up sharply in line with sugar prices, these unorganised sector units managed to pay high prices to cane farmers.”

Says Sanjay Tapriya, chief financial officer of Simbhaoli Sugar: “We were contemplating a downward revision in sugarcane price during this quarterly season, which we could not implement. But, cane price is likely to decline next season.”

Vivek Saraogi, managing director of Balrampur Chini and head of the Indian Sugar Mills Association, has already urged the government that a fall in prices is coming and the likelihood of non-payments of farmers’ dues and crushing of cane needs to be anticipated and addressed.

source: business-standard