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Sugar processors cut down their own profit margins to meet payment deadline to farmers

In order to meet government mandates to pay cane farmers, which required them to sell supply onto the market at the same time they agreed to pay more for sugar cane, sugar processors have decided to undermine their own profit margins

Sugar dealers, dealer levels, sugar prices, sugar trader
The government's decision to remove stockholding limits on sugar dealers to keep prices in check, is expected to ease pressure on sugar prices and improve sugar demand at trader and dealer levels, according to a report. (Image: IE)

In order to meet government mandates to pay cane farmers, which required them to sell supply onto the market at the same time they agreed to pay more for sugar cane, sugar processors have decided to undermine their own profit margins, Reuters reported. The sugar processors are required to pay cane farmers within two weeks of harvest as per government mandates. The mills agreed in May to pay the farmers 11 percent more for their cane for the 2017-18 marketing year, which started on 1 October. Many mills struggled to raise funds from local banks to make the payments, said a senior official at the Sahyadri co-operative sugar factory based in the western state of Maharashtra. This has caused some mills to have fallen behind on the payments by an estimated Rs 20 billion, Reuters reported an unidentified government official as saying.

To meet the funding shortfall, mills boosted sugar sales which have caused the refined sugar market to drop by 13.1 percent to 3,189.50 rupees per 100 kg. “The liquidity crunch forced a few mills to make distress sales. Sensing mills problems, traders also tried to bring down prices,” said B.B. Thombre, president of the Western India Sugar Mills Association (WISMA). Sugar prices have fallen by at least Rs 400-450 per quintal since Diwali to Rs 3,050-3,100 per quintal. Traders expect prices to fall further to 2,800-2,900 per quintal unless the government intervenes and brings back the release mechanism. Mukesh Kuvediya, secretary general, Bombay Sugar Merchants Association, while talking to The Indian Express said prices have fallen on the estimates of higher production at 250 lakh tonnes and a carry forward stock of some 40 lakh tonnes in addition to the millers going in for liquidation of their stocks at the start of the crushing season.

Last year, Maharashtra’s crushing season started on a stormy note with cane growers taking to the street demanding higher cane prices for their produce. The Centre has fixed FRP at `2,300-2,500 per tonne depending on the recovery.On a pan-India basis, sugar’s price climbed by 37% in the last two years as last year’s sugar output fell to 21mt. Policymakers protected farmers and the industry by hiking import duty from 40% to 50% to block cheaper imports while permitting selective import of about 0.8 mt raw sugar in two tranches for the coastal mills, out of which, 0.3 mt was permitted with 25% duty. Farmer’s arrears of sugarcane have substantially come down due to such supportive policies.

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First published on: 17-01-2018 at 14:43 IST
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