Here’s why Maharashtra sugar mills are leaving a bitter taste

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Published: August 6, 2016 6:28:41 AM

Top producer Maharashtra has sold less sugar in the current marketing year though September than a year earlier despite a spurt in prices in recent months, in stark contrast with other key states

SugarTop producer Maharashtra has sold less sugar in the current marketing year though September than a year earlier despite a spurt in prices in recent months, in stark contrast with other key states (Reuters)

Top producer Maharashtra has sold less sugar in the current marketing year though September than a year earlier despite a spurt in prices in recent months, in stark contrast with other key states, reports Banikinkar Pattanayak in New Delhi. Analysts say the “hoarding” by some mills and cooperatives in the state is causing an “artificial shortage” in the market and jacking up prices of the sweetener. Importantly, mills and cooperatives in Maharashtra are yet to clear cane dues of R413 crore owed to farmers, according to the latest data.

Sources told FE that an upset Union food ministry has held two rounds of meeting with Maharashtra government officials through video-conference in the last 15 days and expressed its concerns about the slow pace of sales there. The ministry is encouraging mills and cooperatives to sell more sugar in Maharashtra to tame prices that have surged over 40% since the current marketing year started in October 2015. The ministry feels the sharp rise in prices is out of sync with the demand-supply fundamentals.

According to the official data, despite a 20% plunge in production in 2015-16, Maharashtra was still holding stocks of close to 60 lakh tonnes as of June 30 this year, just 1.3% lower than a year before. By contrast, stocks in Uttar Pradesh tumbled as much as 16.8% as of June 30, despite the fact that the state’s production fell only 3.5% in 2015-16 from a year earlier. Similarly, the stock levels of other key states such as Karnataka, Tamil Nadu and Gujarat have fallen at a faster pace than Maharashtra.

Considering that Uttar Pradesh sells roughly 5.5-6 lakh tonnes a month, it will take only about five months to exhaust the entire inventory (as of June 30), said one of the sources. However, average sales in Maharashtra are around 7 lakh tonnes a month, so selling the 60 lakh tonnes of sugar would take close to nine months.

Sugar analysts say mills and cooperatives in Maharashtra are holding on to stocks anticipating a further rise in sugar prices in view of a projected fall in production in 2016-17 (starting October 1), as the cane crop has been hit by last year’s drought. The country’s sugar production may fall 7.3% in 2016-17 to 23.26 million tonnes, recording a second straight year of decline, according to a preliminary estimate by the Indian Sugar Mills Association.

Sanjeev Babar, managing director of the Maharashtra State Cooperative Sugar Factories Federation, however, refuted charges of hoarding by cooperatives. He said the state has sold just over half of its stocks of 120 lakh tonnes (36 lakh tonnes from the previous year and 84 lakh tonnes of fresh production in 2015-16) until June 30, which is no small amount. He added that although cane arrears are to the tune of Rs 413 crore, farmers in the state have already been paid over Rs 18,000 crore. Also, the cooperatives have taken loans from banks at over 12% interest per annum to pay farmers for cane supplies, so there is not much of an incentive to hold stocks and keep paying interest. In Maharashtra, cooperatives make up for roughly 65% of total sugar production while mills account for 35%.

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