Maharashtra co-op sugar mills face glut crisis looms

Maharashtra’s cooperative sugar mills are heading towards a financial crisis in the current crushing season. This is due to problems in the disposal of the carryforward stock of 3.5 million tonnes (mt), worth Rs 9,205 crore, rising mismatch between the cost of production and realisation, and delay in the commencement of crushing due to ongoing agitation by farmers demanding higher cane payment.

Further, the recent 70 per cent increase in the harvesting and transportation charges has added to the financial burden.

Moreover, millers face increased cost of inputs such as water and electricity charges, fertilizer and wages.

The Federation of Cooperative Sugar Factories in Maharashtra, a representative body of 170 mills, had estimated that factories would also have to incur the burden of interest, cost of storage and insurance on the balance quantity of 3.5 mt (2010-11).The balance quantity in 2006-07 was 3.4 mt worth Rs 4,200 crore, in 2007-08 it was 2.9 mt worth Rs 6,000 crore, 500,000 tonnes worth Rs 1,500 crore in 2008-09 and 1.4 mt worth Rs 4,055 crore in 2009-10. Maharashtra had recently revised sugar production estimates to 8.7 mt from the earlier estimate of 9.3 mt by the end of the current crushing season (2011-12). This was due to a decline in cane production by at least 6 mt, especially due to low production in cane-rich western Maharashtra, which witness poor rainfall.

“Open market prices have been declining steadily since the past few months. The current ex-mill realisation after including exports is Rs 2,650 a quintal, against the cost of production of Rs 2,700 a quintal. This is causing severe financial difficulties and losses to mills,” said the federation official, who did not want to be named. He told Business Standard that mills are confronted with the issue of higher cane payment above fair and remunerative price (FRP) of Rs 1,375 a tonne in the state. “Only 15 mills, of the total 168, comprising 121 cooperative and 47 private, have started crushing. The balance are unable to do so fearing damage to the properties by agitating cane farmers,” the official said.

Abinash Verma, secretary general of the Indian Sugar Mills Association, said millers would face pressure on their finances due to higher production and burgeoning inventory costs. “There is a surplus production of 4 mt in 2011-12 at the all-India level and the inventory carrying cost of mills will be very high next year, adding to the cost of production and problems of cash flows. Therefore, the government needs to take quick decision on disposal of this surplus by way of exports, which will help the industry get timely funds to pay farmers during the crushing season. This will also keep the cane price dues under control,” he said.

The chairman of a cooperative mill in western Maharashtra said the piling of stock would lead to short margin on pledged accounts at the state cooperative bank. “This will create problems in the availability of loans ahead of the next crushing season. The government needs to revise the levy sugar prices and also increase exports,” he said.

OUTPUT CAN RISE TO 25 MT

BS Reporter adds: Food minister K V Thomas on Monday said there has been slight upward revision in the ministry’s sugar production estimate for 2011-2012 crop season that has started from October 1. However, it was not clear whether the agriculture ministry has agreed to the revised numbers, because earlier their was disagreement between the two on sugar production estimate for 2011-2012. “We stick to our initial production estimate of 24.7 million tonnes. But the output can go up a little to 25 million tonnes,” Thomas told reporters after meeting Agriculture Minister Sharad Pawar here. The agriculture ministry feels that sugar production this year could be somewhere around 26 million tonnes because of rise in cane acreage.

source: business-standard