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Sweet sugar turns bitter for mill owners in 2014

After decontrol in April last year, the Rs 80,000 crore sugar industry was anticipating better times ahead but low ex-factory prices dashed all hopes.

Manvendra Jha   New Delhi     Last Updated: December 26, 2014  | 10:19 IST
Sweet sugar turns bitter for mill owners in 2014
Photo: Reuters

Sugar remained sweet for consumers this year but turned bitter for mill owners who faced huge losses estimated at over Rs 3,000 crore and struggled to make payments to cane farmers due to sluggish sales realisation.

With sugar production all set to outstrip demand for the fifth year in a row and huge carry-over stocks, the outlook for 2015 appears no different.

The cash-starved industry fears the new year might be worse if the government does not come forward in support and takes steps to curb imports and assist exports to lift the depressed sentiments.

Not only the domestic surplus, the industry is also worried that Brazil, the world's largest producer, could shift more sugarcane for sugar output than ethanol in view of steep fall in global crude oil prices.

After decontrol in April last year, the Rs 80,000 crore sugar industry was anticipating better times ahead but low ex-factory prices dashed all hopes.

FULL COVERAGE:2014 Year In Review

While low retail prices of sugar, which hovered around Rs 35 per kg throughout the year across the country, made consumers happy, the mill owners had to bear the brunt as they suffered losses due to low ex-factory prices and higher cane price.

As central assistance, mill owners this year got Rs 6,600 crore interest free bank loans, export subsidy on raw sugar and import duty hike to tide over the crisis.

Nevertheless, sales realisation did not improve, leading to huge cane arrears to farmers, which peaked to over Rs 14,000 crore in May before falling to nearly Rs 3,600 crore as on December 15.

All-India average cost of production stood at Rs 32.50-33 per kg in the 2013-14 marketing year ended September, while ex-factory sugar prices were about Rs 30.50 per kg.

Losses on sugar sales were compensated to some extent from bye-products, still it is estimated to be over Rs 3,000 crore.

From November, mills have started operations but about 50 per cent of them have not got bank loans for working capital, forcing them to make distress sale for making cane payment.

Prices have dropped further in last few weeks. Mills in southern and western parts of the country are facing a loss of Rs 5 per kg currently, while those in north India are incurring losses of Rs 7 per kg.

"This year has not been good for Indian sugar industry and sugarcane farmers. Ex-mill sugar prices had remained depressed because of surplus availability in the country and depressed global prices, making it difficult for the industry to pay cane price to the farmers on time," Indian Sugar Mills Association (ISMA) Director General Abinash Verma said.

He demanded the government to continue export subsidy on raw sugar scheme, which lapsed in September this year, saying that "only thereafter will the domestic sugar price improve to allow mills to cover their costs." 

(PTI)

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