sugar stocks sector

GET INTO REVERSE GEAR: SUGAR INDUSTRY TO GOVT (Posted - 26 Mar 2010)

Faced with falling profit margins due to a dramatic fall in sugar prices, the sugar industry has sought immediate protection. In a letter to the Union agriculture ministry, the Indian Sugar Manufacturers’ Association (Isma) has asked for tariffs on imports of raw or refined sugar, a reversal of stock and trade limit orders and other help to ensure viability in the next season.

There are a number of such issues that need to be speedily addressed, says Isma president and Balrampur Chini’s Managing Director, Vivek Saraogi.

Early this year, the government had taken some steps to restrict the freedom of the industry, to keep sugar prices from rising. At the time, ex-mill sugar prices were Rs 42 a kg. They’ve since fallen to Rs 32 a kg.

One such step was to reduce the permitted storage by big corporate consumers of sugar, such as cold drink manufacturers, to only 10 days of consumption, against the earlier limit of a month. Isma wants the earlier limit restored.

It also wants modification of the ‘levy quota’ for the public distribution system, of 20 per cent of annual output to be given at almost 60 per cent less than the prevailing market price. Previously, if the levy quota (at Rs 13.45 a kg now) was not lifted fully by traders and stockists, the quantity used to get automatically included in the freesale quota.

Early this year, the government allowed a week’s rollover for the lifting; if the stock wasn’t lifted in a particular week, another week was given. This is putting extra economic pressure on the mills, Isma has complained. It notes that this is the only industry supplying a substantial part of its produce through PDS.

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In addition, Isma wants a reversion to last year’s practice of monthly quota release order -meaning, the government would issue its order at the start of a month for the amount to be released for both PDS and free sale, for the entire month. At the start of the year, it changed this to a weekly system, since it felt sugar prices needed to be controlled. With prices fallen substantially, says Isma, there is no reason to continue with weekly releases.

Also, it complains, “in case of high volatility in spot prices, sugar mills earlier used to hedge their risk on the futures exchange. Since then, the instrument has been withdrawn from the futures platform”.

Isma has demanded the emphasis shift to measures required for the industry’s long-term sustenance. For, it adds, cane prices haven’t declined at all. Mills in Maharashtra are currently paying Rs 275-300 per quintal for cane; in Uttar Pradesh, it is Rs 260-280 per quintal.
The industry had estimated 16.8 million tonnes of sugar output this year, of which about 85 per cent has been reported. With 15 per cent of the cane crop yet to be processed, a clear government direction for stable business would help the industry plan for the next year, Saraogi added. Last year, India’s total output was 14.7 mt.

The industry needs to be tackled efficiently for stable business. Failing which, non-payment of farmers’ arrears and cane-crushing turning unviable are possible, said Saraogi
Source - Business Standard