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Agri-Biz & Commodities - Sugar


Sugar mills ready to pay SMP for cane

Harish Damodaran

New Delhi , Feb. 19

TILL a month back, sugarcane growers and mills were on a virtual warpath. The mills were refusing to pay not just the Rs 95 per quintal price `advised' by State Governments such as Uttar Pradesh, but also the Statutory Minimum Price (SMP) of Rs 73 per quintal (linked to a basic sugar recovery of 8.5 per cent) fixed by the Centre for the ongoing 2003-04 crushing season.

In fact, only on January 28, the UP Sugar Mills Association (UPSMA) obtained a stay order from the Delhi High Court against the Centre's decision, on December 30, to hike the basic SMP to Rs 73 per quintal, from the Rs 69.50 per quintal level of 2002-03. The mills' basic contention was that in a scenario where sugar prices had declined, it was not feasible to pay the new SMP, leave alone the State advised price.

But suddenly, the mood has changed. One by one, mills are coming forward to cough up the SMP. In his January 28 interim order, Mr Justice Manmohan Sarin had directed that pending a final decision, mills deposit half of the Rs 3.50 per quintal difference between the old and new SMP with the concerned District Magistrate and provide a bank guarantee for the remaining half. But now mills are seeking a reversal of this order. The price difference, they say, should be remitted immediately to the growers, instead of languishing as idle deposits with district authorities or banks.

"All mills are paying or have committed themselves to paying the basic SMP of Rs 73 per quintal announced by the Centre," an industry spokesperson said. In other words, SMP has ceased to be a bone of contention.

There are two reasons for this turnaround. Firstly, sugar prices are on a roll. Benchmark `Mawana' and `Daurala' sugar are quoting here now at Rs 1,435-1,440 per quintal, compared to Rs 1,200-1,215 per quintal a month ago. Ex-factory realisations have gone up by Rs 220-225 per quintal within a month, forcing the Centre, on Tuesday, to release an additional free sale quota of 1.5 lakh tonne (lt) for the current month. This is over and above the already released free sale quota of 10 lt and levy quota of two lt for February 2004.

"It is at our instance that the additional release has been made. There is lot of speculative activity taking place in sugar now and although the current prices are reasonable, it suits neither the industry nor the Government to have a price spiral at the time of elections. What we want is steady prices at the existing levels, enabling us to also pay the SMP to growers," the spokesperson claimed.

Apart from better price realisations on sugar, the other factor driving the new-found enthusiasm among mills to cough up the SMP is competition from manufacturers of gur (jaggery) and khandsari. In many parts of UP, crushers are reportedly offering growers Rs 90-100 per quintal for cane. And unlike the mills, the payment from gur and khandsari producers is prompt and on cash basis. With the prices of alternate sweeteners, too, rising in sympathy with sugar, the old competition between mills and crushers for sourcing cane has seemingly resurfaced.

The main factor underlying the hardening of sugar prices is the expectation of a significant production decline from 201.45 lt in 2002-03. Although the country as a whole has had good monsoon and post-monsoon rains this year, the sugarcane growing areas of western Maharashtra, northern Karnataka and Tamil Nadu have experienced poor precipitation. UP mills, on the other hand, are reporting very low sugar recoveries this season.

All put together, sugar production in the 2003-04 season may not exceed 160 lt. And with the poor soil moisture regime leading to lower planting of cane for the 2004-05 season as well, the industry sees a significant drawdown of stocks taking place over the next year.

More Stories on : Sugar | Agricultural Policy

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