Sugar industry in India is going through an unprecedented crisis as sugarcane prices mount year on year, driven by populist State governments, and sugar prices drop on surplus production, according to the Indian Sugar Mills Association.
The continuous increase in sugarcane prices has been counterproductive as cash-strapped sugar mills have delayed paying farmers for their produce and arrears build, according to Abinash Verma, Director General, ISMA, which represents the private and public sector sugar mills.
The sugarcane dues of ₹ 19,250 crore as of March 2015 to farmers mean that they have not been paid for over one-third of their produce, he said.
Sugar production has consistently outstripped domestic consumption, in the last five years with the 2014-15 production set to hit a high of 26 million tonnes against a demand of about 24 million tonnes. Sugar prices have hit a low of ₹ 22,000 a tonne which is the lowest in the last six year.
During this same period sugarcane price has tripled from ₹ 857 a tonne to ₹ 2,200 a tonne in terms of the statutory price set by the Centre. State Governments and on an advisory price taking the sugarcane price to a further high. In Tamil Nadu, for instance, sugarcane price for the season is ₹ 2,650 a tonne, he said.
Sugar prices do not even cover the cost of sugarcane price, according to Verma. The cost of production of a tonne of sugar is about ₹ 32,770 against an ex-factory price of ₹ 25,000.
One silver lining in this bleak scenario is that two of the top sugar producers – Maharashtra and Karnataka – have rationalised their sugarcane pricing by linking it to sugar prices. They pay farmers 70 per cent of the revenue realised from sugar and primary by products, bagasse, molasses and press mud.
However, other major producers such as Tamil Nadu, Uttar Pradesh, Haryana, Punjab and Uttarakhand continue with unrealistic sugarcane pricing policies, he said. However, states like UP support sugarcane pricing through state subsidies, according to Verma.
TAMIL NADU HIT
Sugar mills in Tamil Nadu have been worst hit as in addition to unviable sugarcane pricing, a Value Added Tax of 5 per cent on sugar has made them uncompetitive. Sugar from neighbouring states that do not levy the tax is sold here. The State Government also levies 14.5 per cent VAT on potable and industrial alcohol so they are out priced in the market.
Verma said the Government has also not allowed the sugar mills to produce ethanol for blending with automobile fuel, which is a national programme. The tariff iy pays for cogeneration power supplied to the grid is the lowest at ₹ 3.67 - ₹ 4.15 a unit. (EOM)