The sugar industry in India’s biggest-producing state, Uttar Pradesh, is staring at a loss of Rs 3,000 crore this season (October-September), after the 16 per cent increase in sugarcane price announced on Friday evening. Stocks of sugar companies like Balrampur Chini and Triveni Engineering got crushed, even as the market ended flat.
In the first year of its tenure, the Samajwadi Party-led state government increased the state advised price (SAP) of sugarcane by Rs 40 a quintal across varieties. The new price is Rs 280 and Rs 290 a quintal for normal and early varieties, respectively. “In states like Tamil Nadu, Haryana and Punjab, where the system of SAP prevails, the price is much lower. Mills in Haryana and Punjab will pay Rs 240 for sugarcane, while those in Tamil Nadu will pay only Rs 225 a quintal,” said S L Gupta, secretary of the UP Sugar Mills Association.
Gupta said at the new cane price, the cost of sugar production would be Rs 3,500-3,600 per quintal, while the current realisation is ruling around Rs 3,250. “If sugar prices remain at these levels, the UP industry will incur a loss of Rs 3,000 crore in the season on output of eight million tonnes,” he noted.
|A BITTER PILL|
|Company||Closing share price
on Dec 10 (in Rs)
previous day (%)
The industry was all along anticipating a lower increase in the sugarcane price since last year. The Predecessor, Mayawati government, too, had raised prices by Rs 40 per quintal. “Banks are concerned about the impact of this hike. They had been positive on the sector when realisations improved to Rs 3,600 a quintal in September. However, at this sugarcane price, a loss is unavoidable and we will face problems in making sugarcane price payment to farmers. Ideally, the price should have been hiked by Rs 20 per quintal,” said Kishor Shah, director (finance) at Balrampur Chini that owns 10 mills in the state.
The positives of a possible increase in sugar prices have been negated by the Rs 40 rise. According to Icra, UP-based sugar mills will benefit from higher prices in sugar season 2012-13 as well as higher crushing volumes and also higher recovery rates but higher cane costs are likely to substantially offset this positive impact. However, Icra expects upside if the recommendations of the Rangarajan Committee regarding abolition of levy sugar is accepted and/or ethanol prices see a revision.
Interestingly, the UP sugar industry is not looking to legally challenge this rise, as it had been doing often in recent years. “We are not thinking of a legal recourse. We plead with the state government to grant incentives like waiver of Rs 2 purchase tax on every quintal of sugarcane we buy, reducing society commission from Rs 5.10 to Rs 2.10 a quintal and elimination of the three per cent entry tax levied on the sugar produced and consumed within the state,” Gupta said.