Bitter tale: Sugar mills see liquidity crunch till June

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 04 February 2021, New Delhi, IN: As sugarcane crushing season progresses, liquidity concerns continue to haunt mills. Exports are yet to gain momentum in a volatile market, while sluggish demand might create problems in paying complete Fair and Remunerative Price (FRP).

Mills across the country are certain to face liquidity crunch at least in the next three months with opening balance 107 lakh tonnes (lt) sugar stock blocking massive working capital of about ₹35,000 crore.

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According to the Indian Sugar Mill Association (ISMA), currently almost 85-90 per cent of the revenue generated by sugar mills is spent towards cane payment, due to which about ₹93,000-₹94,000 crore of cane price is payable to farmers in the current season.

One of the directors of a sugar mill in Sangli requesting anonymity said that mills have paid about 78 per cent FRP for the cane crushed till last month. But there is no certainty of what would happen in the last phase of the crushing season. “Sugar mills in Maharashtra have produced about 64 lakh tonnes of sugar till date, that is almost 30 lakh tonnes more compared to last year same time. What we are going to do with this sugar?,” he asked pointing to the sluggish demand in the market.

“The period up to April 2021 is more of buying sugarcane and less of sugar sales. This is reducing the availability of cash flow to mills which enables them to pay cane prices to farmers and repayment of bank loans,” ISMA Director-General Abinash Verma told BusinessLine. He added that sugar exports have just started, and as per market reports export contracts for about 17-18 lt of sugar have been signed so far.

“Cash flow from sugar exports will only come mostly from May-June 2021, which means till then sugar mills will continue to face liquidity crunch,” Verma said.

The current season’s opening balance of sugar is about 107 lt. Verma said that of the expected sugar production of 302 lt in the current season, sugar consumption is seen at only around 260 lt, leaving about 42 lt of unsold sugar stocks, which will additionally block another ₹15,000 crore.

Government’s stand

Union Minister of State for Consumer Affairs Raosaheb Danve told Lok Sabha on Tuesday that the government has already taken steps to improve the liquidity position of sugar mills enabling them to clear cane price dues of farmers for sugar season 2020-21.

The Centre recently approved ₹3,500 crore for providing assistance to sugar mills for expenses on marketing costs including handling, upgrading and other processing costs and costs of international and internal transport and freight charges on the export of sugar.

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