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Sugar mills seek export sops, debt restructuring

Owing to falling sugar prices and a mismatch between its production cost and sale price, banks have been reluctant to lend to sugar companies.

Ajay Modi | January 31, 2015 | Updated 16:49 IST
Sugar mills seek export sops, debt restructuring
Photo: Reuters

Hit by a sustained drop in prices, the domestic sugar industry has sought sops to export the sweetener, and restructuring of bank loans.

"The debt of the sugar industry has increased from Rs 11,443 crore five years ago to Rs 36,601 crore. We need a long-term solution that solves the structural problems," Tarun Sawhney, Vice Chairman and Managing Director of Triveni Engineering, said at a press conference on Friday.

Sawhney is also the Vice President of the Indian Sugar Mills Association (ISMA).

Owing to falling sugar prices and a mismatch between its production cost and sale price, banks have been reluctant to lend to sugar companies.

"The industry owes Rs 11,000 crore to farmers and this is going to increase by the time crushing ends in March. Banks have declined to offer working capital loans to several sugar companies," said Abinash Verma, Director General of ISMA.

A domestic surplus, unattractive export market and pressure to sell sugar to make payment to cane farmers are pulling down prices.

The industry is not able to recover the cost of production from sales. Prices are at a three-year low, making it difficult for the industry to service debt, pay wages and cane price to farmers.

In Maharashtra, the biggest sugar producing state, the cost of production is Rs 3,100 per quintal while sugar is selling for Rs 2,500 per quintal.

In the second-biggest producing state of Uttar Pradesh, sugar is selling for Rs 2,700 per quintal while production cost is Rs 3,400 per quintal.

Mills in Uttar Pradesh are mandated to pay a higher sugarcane price by the state government while Maharashtra follows a sugarcane price announced by the central government.

Domestic sugar consumption hovers around 24.8 to 25 million tonnes but the industry is likely to produce 26 million tonnes sugar in the sugar year that started in October 2014. The country had an opening stock of 7.5 million tonnes when the previous season ended in September 2014.

Weak global prices make export uneconomical unless assisted by government subsidy. Indian industry had received export assistance of Rs 3,300 per tonne from the government to export sugar last year. However, no assistance has been declared for this year.

"We require timely intervention to ship out the surplus and prevent a further crash in domestic prices," said A. Vellayan, Executive Chairman of Murugappa Group and President of ISMA.

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