Date: October 22, 2008
Ref. No. MPML/PMS/183/2008
Sugar Sector Hit By Capital Woes
Funding Constraints May Force A Delay In Cane Crushing
"The banks have told clearly that they can give no guarantee on working capital loans to sugar company."
"Sugar prices are projected to get more expensive in 2009 on the back of lower sugarcane output in 2008-09"
"The situation on working capital loans may have eased marginally but it is still not smooth enough"
"Farm ministry data said sugarcane area in Maharashtra has slipped to 7.88 lakh hectares this year compared to 10.88 lakh hectares in the previous season."
MONDAY'S repo rate cut and the recent CRR cuts for banks notwithstanding, the ongoing liquidity crunch in the economy is threatening the country's sugar industry with serious working capital woes for the new sugar season (October 2008-September 2009).
Funding constraints will force a delay in the crushing of sugarcane and push the timetable beyond the normal crushing period. The worries have triggered off anxiety within the industry, and the common platform of private sector mills countrywide, the Indian Sugar Mills Association (ISMA), is set to hold a priority meeting here on Tuesday to discuss the issue.
"The banks have told clearly that they can give no guarantee on working capital loans to sugar company. They may or may not choose to lend money and cannot give any assurances against a background where banks are even unwilling to lend to each other."
Sugar prices are projected to get more expensive in 2009 on the back of lower sugarcane output in 2008-09, and could get pricier still for the consumer if working capital woes and other woes continue to harangue the industry, straining sugar supply in the market.
Several mills are already being probed for illegally exporting sugar despite government directives to hold the buffer quantum for the festive period.
The government has taken pro-active steps in releasing huge quantum of sugar in the open market during the festival season by dissolving two buffers.
As if that weren't enough, in UP, the state that is estimated to have outdone Maharashtra in sugar production this year (2007-08 season, at 65 lakh tonnes), the relief accorded by the courts on sugarcane pricing for 2007-08 has already dissipated with the Mayawati government having declared a high SAP (state advised price) of Rs 140/quintal and Rs 145/quintal (for early varieties) earlier this week.
In 2007-09, the sugar industry was directed by the courts after prolonged legal battle to pay a cane price of Rs 125/qtl to cane farmers. "The situation on working capital loans may have eased marginally but it is still not smooth enough," sources in the country's largest sugar producer, Bajaj Hindusthan, said.
The high SAP declared by the state government comes at a time when sugar farmers in the state are preparing to protest this week against low sugarcane price. Industry sources said: "This high SAP is additional headache over and above our existing woes. Sugar mills cannot afford to pay this price, which has been declared to garner political brownie points. It is more difficult than before to say when cane crushing will now begin in UP."
The forced delay in sugarcane crushing has also affected the country's biggest sugar producing state and food minister Sharad Pawar's homeground, Maharashtra. Maharashtra's sugar production is already projected to decline by over 30% (about 60 lakh tonne) in the ongoing 2008-09 season, primarily due to low sugarcane output.
Farm ministry data said sugarcane area in Maharashtra has slipped to 7.88 lakh hectares this year compared to 10.88 lakh hectares in the previous season. The state produced 91 lakh tonne in 2007-08 season (October-September). However, there are indications that the overall slump in the economy and the reluctance of banks, including cooperative banks, to lend to various sectors including the state's showpiece sugar sector could have contributed to its inability to stick to the mid-October cane crushing timetable.(Source: - Economics Times)