The Hindu Business Line : Sugar millers expect another sweet year ahead

AS the sugar season starts, sugar millers look forward to another good year in 2004-05. Sugar prices are bound to remain buoyant with the industry is moving towards realistic sugarcane pricing and margins are on the increase.

One concern for the mills in the South is the competition for sugarcane from jaggery makers, who are willing to pay more for sugarcane. But this is a traditional problem that mills face during sugarcane shortage and is bound to pass, millers say.

Sugar millers are keeping their fingers crossed, hoping that the Centre does not rock the apple cart, for instance, by permitting sugar imports. This is one year in which they can hope to make good the losses suffered in the glut years. Going by current planting trends, 2005-06 could see near normal levels of sugar production, they say.

For now, sugar prices are ruling at around Rs 1,450 a tonne despite the heavy releases into the market for the festival season announced by the Centre. Cane price ranges around Rs 850-1,000 a tonne.

The recent announcements by the Centre that it would link sugarcane prices to a 9 per cent sugar recovery rather than 8.5 per cent and that cane prices are likely to be based on average recovery for the season rather than peak period recovery mean that cane prices are likely to be more closely linked to that of sugar, say industry sources.

Traditionally, when sugarcane prices are based on the peak recovery period, the average price is bound to be higher.

For example, during a season, sugar recovery starts off about half a percentage point or so lower, peaks and then falls. When the peak period recovery alone is taken into account to fix cane price, the average price is bound to be higher.

A mill receives only about 40 per cent of sugarcane during the peak season and the rest is crushed during the lower recovery periods. Therefore, it is ideal to take the average for the entire season, millers say.

Though farmers are concerned, they are not complaining stridently because millers are willing to pay a higher price, compared to two years ago.

With sugar prices ruling high and sugarcane availability being hit due to drought, mills are amenable to paying more. Mills in Tamil Nadu pay between Rs 850 and Rs 1,000 a tonne. Earlier, the millers had gone to court when the Union Government announced a statutory minimum price of Rs 750.

Sugar prices are likely to continue being buoyant since sugar production is bound to drop in the current season with estimates ranging at around 125 lakh tonnes against the last season's 138 lakh tonnes. In Tamil Nadu, the production forecast is around 10 lakh tonnes compared to the 2003-04 season's nine lakh tonnes.

However, one concern in the South, particularly in the jaggery belt in Tamil Nadu, which includes Salem, Erode, Coimbatore, Tiruchi and South Arcot, is that jaggery makers are poaching on the sugarcane that millers need.

With jaggery ruling at around Rs 2,000 a tonne (much higher than sugar prices), jaggery makers are paying a competitive price for the sugarcane.

With molasses prices on a high due to the drop in sugarcane availability, arrack manufacturers in the neighbouring States have been hit. The alternative raw material is jaggery. This is driving the prices of the commodity.