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The failure of both northeast and southwest monsoons in 2016 has pushed Tamil Nadu’s sugar industry to its lowest ebb in 32 years with sugar mills facing an existential crisis. Of 43 mills in the state, seven did not crush any cane during the current season due to low cane availability or financial difficulties. Others have either completed crushing or are about to complete it.
“I haven’t seen anything like this in my living memory,” said Palani G Periyasamy, chairman of Dharani Sugars and South India Sugar Mills Association (SISMA). Mills operated for 300 days in a year a few decades ago. “This year we will be lucky if we operate for 60 days,” said a senior SISMA official.
The impact has had a spiraling effect on sugarcane farmers, many of whom haven’t got their cane arrears from some mills. With an estimated cane availability of just 75 lakh tonnes, sugar mills are operating at just 20% to 25% of their rated capacity.
The industry is currently going through an extended phase of distress due to factors like failure of monsoon, varietal degeneration, reduced recovery, decline in area under cultivation and the resultant reduction in capacity utilisation of sugar mills.
The impact of the downturn faced by sugar mills is so severe that the state which consumes nearly 15 lakh tonnes of sugar a year will have to import 9 lakh tonnes this year. “Sadly, for markets like Sankaran Koil (in southern TN), we are getting sugar from Maharashtra,” the SISMA official said. As if adding insult to injury, Uttar Pradesh and Maharashtra are projected to have a bumper crop which makes it viable to move sugar from Maharashtra to Tamil Nadu.
The sugar season starts in October and ends in the following September. “This year while some mills have finished their cane crushing in February some have done it in March,” industry officials said.
From a peak of 254.55 lakh tonnes of cane crushed in 2011-2012, crushing fell to 119.04 lakh tonnes during sugar season 2016-2017. The estimated cane availability for the current season is around 75 lakh tonnes.
Adding to the woes of the already stressed mill owners, sugar prices have crashed — prices hover around Rs32,000 per tonnes now.
The TN sugar industry is burdened with massive debts which it finds difficult to service and repay. Some loans categorised as ‘SEFASU 2014’ and ‘Soft Loan 2015’ have been taken for payment of FRP (fair and remunerative price) during those seasons since sugar prices witnessed a massive fall and not for creating any asset, officials said.
With piling cane dues, the Rs290 crore sugar industry in the state is hopeful that the budget announcements of an incentive package for the industry will help it tide over the crisis.
The government has announced a revenue sharing formula for sugarcane growers in its budget. It will protect the interests of farmers by assuring them of the present state administered price (SAP) of Rs2,750 per tonne excluding transportation cost of Rs100, by paying the difference between the present SAP and the price received under a new revenue sharing formula as transitional production incentive directly to the farmers, said finance minister O Panneerselvam while presenting the budget.
A back-of-the-envelope calculation shows that the cost of sugar for the mill is Rs4,000 per tonne, (at 25% capacity utilisation) while the selling price is Rs3,200.
Introduction of ‘Revenue Sharing Formula’ for sugarcane pricing, assures fair and remunerative price for the farmers and also enables farmers to get additional revenue over and above FRP, when the realisations from sugar and by-products move up. “It is a boon for the sugarcane farmers as they are guaranteed of a minimum price and would get their due share out of higher sugar price in market and there would be certainty of payment. This also brings stability to the sugar industry since cane prices will get linked to realisation from sugar and its byproducts,” said Periyasami.