Sugar Co-ops Chalk Out Plans To Cut Production Cost

Mumbai, July 28: | Updated: Jul 29 2002, 05:30am hrs
The cooperative sugar factories in Maharshtra, which are facing acute problem of liquidity and heavy interest on blocked capital in view of a large scale sugar production, have chalked out a multi-pronged strategy to drastically cut down the cost of production and collection of additional funds. By the end of June, 58.45 lakh tonne of sugar valued at Rs 7,500 crore was lying in go-downs attracting heavy interest burden. In addition to this, the market rates of sugar have also declined which have caused additional choking of limited financial resources.

The huge stocks have created a problem with nearly 135 factories compelling them to keep the outstandings for a longer duration. This has been due to non-lifting of levy sugar of about 4.5 lakh tonne by North-Eastern states (Assam, West Bangal and Bihar) and by the Food Corporation of India (FCI). The value of this unlifted stock has been about Rs 500 crore which was about 10 per cent of the total exposure limit sanctioned by the district central cooperative banks (DCCB) and Maharashtra State Cooperative Bank (MSCB).

The total funds involved for working capital as on March 31, 2001 has been worth Rs 7,319.16 crore of which Rs 3,843.44 crore has come from the MSCB and the balance of Rs 3,475.72 crore from DCCBs. The exposure limit has been maximum in the sugar industry because it was the only agro-based industry in rural India which was financed by cooperative banks.

According to the Federation of state cooperative sugar factories, for the purpose of exposure, instead of taking section limit, if the actual outstanding was taken for the purpose of exposure, this would facilitate to reduce the exposure. Therefore, the actual outstanding on working capital instead of sanction limit may be considered for the purpose of exposure limit.

Phasing of exposure was possible if permitted for five years and would be brought down to the normal level. The present exposure was about 65 per cent which can be brought down by phasing in 4-5 crushing seasons. Besides, the state government would also explore a possibility on asking cooperative sugar factories to seek funds from nationalised banks in a bid to reduce the exposure limit.

Further, according to the federation, if the exposure limit to sugar sector was kep low, there was a great danger that many sugar factories would not be able to get sufficient credit and would close down despite availability of cane. This may cause large scale distress among cane farmers and the labourers and also adversely affect rural economy.

The federation has called upon the Reserve Bank of India (RBI) and the Centre to consider Maharashtra as a special case for allowing exposure limit of 75 per cent instead of existing 40 per cent on internal lending resources for the current year. The federation was of the view that the Centre’s decision of totally decontrolling sugar industry would help reduce the inventory which would facilitate cut in the exposure.

It has called upon the financing banks to reduce rates of interest at least for one year -coming season 2002-03. Due to heavy stocks, the factories were overburdened by the interest. It has suggested that the present interest rates on working capital be reduced by two per cent and may be brought down to 12 per cent annually.

To overcome the financial crisis, the federation has proposed that the members or sugarcane suppliers should voluntarily contribute low interest deposit (six per cent interest) by way of deducting from final cane price of 2001-02 season (at least rs 10 per tonne).

The deposit, so collected, may be useful to meet out the requirement like pre-seasonal loan.

Moreover, the federation has called upon banks to give special loans for cane development to individual sugar factories for the activities to be taken for individual sugarcane growing members. This is expected to facilitate the sugar factories to develop the sugarcane in their area of operation.

According to the estimates, about 450 lakh tonne of sugarcane would be available for crushing and about 50 lakh tonne of sugar production is expected during the crushing season for 2002-03.

The federation has proposed that the commissioner of sugar may take review availability of sugarcane of each individual factory and take decision that if available sugarcane can feed only two factories out of four neighbouring mills which two factories may be closed for the season. This would reduce the overhead cost of factories.

The federation has made a submission to the Union food minister for the creation of buffer stock of 25 lakh tonne and reimburse the cost from the Sugar Development Fund (SDF).

As per the provision in SDF, interest shortage and insurance charges were reimbursed from the SDF. The Centre has created buffer stock of 5 lakh tonne in 1994-95 and subsequently additional 5 lakh tonne was added.