The Hindu Business Line : Industry opposes zero duty import of white sugar

New Delhi, March 24 The Indian Sugar Mills Association (ISMA) has opposed duty-free import of white sugar into the country, claiming that factories are incurring losses despite a significant improvement in realisations.

According to Mr Vivek Saraogi, Managing Director of Balrampur Chini Mills Ltd and Vice-President of ISMA, mills in Uttar Pradesh have during the 2008-09 season (October-September) paid an average cane price of Rs 1,400 a tonne to growers, which translates into around Rs 1,550 after accounting for society commission, purchase tax and transport to factory.

Other factors

But this time, there are a couple of other factors that have pushed up production costs. First, sugar recovery has dropped by about half-a-percentage point to 9 per cent of the cane. This means the effective cost of cane for producing one quintal (100 kg) of sugar has been over Rs 1,700.

Secondly, poor availability of cane has meant that mills in Uttar Pradesh have been able to crush for hardly 90 days during this season, compared with the normal 130-140 days. Even in peninsular India, the crushing duration has fallen from 210 to 150-odd days. The lower capacity utilisation, in turn, has driven up conversion cost from Rs 300 to Rs 350 for every quintal of sugar, taking the total cost of production to Rs 2,050.

Related costs

Moreover, this cost does not take into account interest and other capital-related costs. “If my company has borrowings of Rs 1,000 crore, the interest cost on this comes to Rs 100 crore at 10 per cent. Last year, I produced 80 lakh bags or 8 lakh tonnes (lt), which worked out to Rs 125 a quintal of sugar. This year, my production is going to dip to 5 lt, which raises my interest cost to Rs 200 a quintal,” Mr Saraogi noted.

In all, therefore, the ex-factory cost of sugar during the 2008-09 season would be in the region of Rs 2,250 a quintal, “whereas we are not realising even Rs 2,100 today”, he added. This, despite a significant increase over the average all-India average realisation of Rs 1,356.48 a quintal for the 2007-08 season and Rs 1,400-1,450 for Uttar Pradesh.

Mr Saraogi said that if mills were to cover their costs and also a provision of Rs 95 a quintal on excise/cess and about Rs 70 a quintal towards transport were made, “it is difficult to expect sugar to retail at below Rs 25 a kg”.

Planting concerns

The ISMA President and Managing Director of Godavari Sugar Mills Ltd, Mr Samir S. Somaiya, said allowing white sugar imports at zero duty does not make sense because it would ultimately result in growers planting less area.

“It is only from around November, with sugar prices going up, that growers have started receiving positive signals to increase planting. If imports lead to lower realisations and impact the mills’ ability to pay, growers will not plant any cane in the post-monsoon season. And that will be disastrous for the country, which cannot obviously import its entire requirement,” he observed.

Better policy

A better policy, he felt, would be to continue with raw sugar imports by mills at zero duty against re-export obligation beyond September 30. “This will help regulate imports and also enable mills to improve capacity utilisation,” he added.

ISMA expects sugar production in 2008-09 at 155 lt, which, with opening stocks of 80 lt and raw sugar imports of 15 lt, will entail total availability of 250 lt. On an estimated consumption of 225 lt, there will be stocks of 25 lt at the end of the season. “Next season, we can expect production to recover to 200 lt, though it is still early days,” Mr Somaiya pointed out.

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Sugar imports, even at zero duty, unviable
Mills may gain from zero duty raw sugar imports

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