1. Uncertainty over subsidy: Maha mills, traders avoid contracts

Uncertainty over subsidy: Maha mills, traders avoid contracts

Sugar mills in Maharashtra are yet to enter into forward contracts with traders for raw sugar exports...

By: | Pune | Published: December 4, 2014 1:59 AM

Sugar mills in Maharashtra are yet to enter into forward contracts with traders for raw sugar exports this season due to uncertainty over export subsidy.

Amid falling global prices, the government is yet to decide whether to continue the export subsidy in the current marketing year and therefore mills in the state have not taken any decision with regard to production of raw sugar, top officials of the Maharashtra State Cooperative Sugar Factories Federation (MSCSFF) said.

Maharashtra accounts for most of the raw sugar produced in India.

There has been no communication forthcoming from the new government with regard to raw sugar incentives and therefore traders are still waiting and watching, said Bombay Sugar Merchants Association secretary general Mukesh Kuvedia. “Global prices are currently at 15-16 cents per pound which makes exports unviable at this stage. Cane prices are much higher. A clearer picture will emerge after December when the festive season begins and then traders are likely to enter into agreements with mills,” said Kuvedia.

Indian mills traditionally produce white sugar and produce raw sugar only as per market demand.

MSCSFF MD Sanjeev Babar said usually forward contracts happen at the beginning of the season. This time, however, prices are low and since incentives are yet to be announced, there have been no agreements this season, he said.

According to Indian Sugar Mills Association director general Abhinash Verma, the performance of the sugar sector has been bad and sugar prices have been coming down by R10-15 per quintal for the last three months. “Sugar prices in Maharashtra are at R2,550 per quintal and R2,800 per quintal in Uttar Pradesh. At these prices, if you do a back calculation taking into account the recommendations of the Rangarajan Committee Report, none of the mills will be able to pay FRP to farmers unless something is done to improve the revenue realisations,” he said.

While realisation of mills continues to be under pressure, cost of production has gone up affecting cash flows of millers burdening them with an all time high cane arrears of R12,500 crore. With higher FRP, chances are that the cane arrears could higher than R12,500 crore, he
cautioned.

“Last year the opening stock was 93 lakh tonne and this season has started with 75 lakh tons of opening stock and although the surplus is much smaller. However, the government had extended interest free loans from December 2013 when the markets were not as bad. Mills have been waiting for continuation of export incentives since the last three months and the sentiment in the trading community has been poor. ISMA has been pushing for continuation of the incentives. There is still time and people are expecting the government to come forward with assistance,” Verma said.

Tags: Sugar Mills
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