For sugar mills, a Rs 1,000 crore bitter pill

The current cane season ending September may turn bitter for the sugar mills as they are likely to run up cumulative losses of more than Rs 1,000 crore due to a widening gap between cane cost and sugar price.

The losses could continue in the coming season as well, as the cane price hike is seen far higher than the expected increase in sugar prices, which have remained depressed, said a report by ratings agency Crisil on Thursday.

Major sugar producers in the country including Balrampur Chini, Bajaj Hindusthan and Shree Renuka Sugars have been flagging the issue for some time now.

The government has recently come out with measures to decontrol the sector – removal of the 10% levy obligation giving sugar mills the freedom to sell their entire output in the open market.

Despite this measure by the central government, individual states, which eye farmers’ votes, still control the cane prices through the state advisory prices, they said.

“The outlook in terms of prices has turned more bearish than it looked three months ago primarily because the production of the previous season which has just finished has come in at the higher end of estimates,” Narendra Murkumbi, managing director, Shree Renuka Sugars recently told analysts.

High domestic production led to lower sugar prices and the cane price increase throughout the country this year has therefore turned out to be higher than the increase in sugar prices, he said, adding both have increased but the cane prices have increased more than normal.

For sugar season 2013-14, the central government has announced a 24% hike in the minimum price payable for sugarcane, the Fair and Remunerative Price (F&RP), whereas as per Crisil’s estimates the increase in sugar prices is likely to be only 8-9%.

“The worst hit will be mills in Uttar Pradesh and Tamil Nadu, where the state governments announce State Advised Price for sugarcane that is higher than the F&RP,’’ Crisil said.

“With freedom on the end product side, we will see a lot of development in the sector.

Only concern left is the cane price,” Vivek Saraogi, MD, Balrampur Chini had said earlier.