Sugar Mills in India to Extend Shutdown on Record Cane Costs

Sugar Mills in India to Extend Shutdown on Record Cane Costs

Sugar mills in India’s biggest growing region will extend a shutdown to curb losses after the government retained cane prices at a record high, potentially curbing output in the world’s second-largest producer. Factories will remain shut as the mills are unable to pay growers the price set by the state, Uttar Pradesh Sugar Mills Association President C.B. Patodia said yesterday in a phone interview in New Delhi. Producers can only pay as much as 225 rupees ($3.60) per 100 kilograms (220 pounds), compared with the state-set price of 280 rupees, he said.The deadlock may delay cane crushing and reduce output from the 25 million metric-ton Indian crop estimated by the Indian Sugar Mills Association, Director General Abinash Verma said yesterday in New Delhi. Bajaj Hindusthan Ltd. (BJH), Dhampur Sugar Mills Ltd. (DSM), Triveni (TRE) Engineering & Industries Ltd. and other producers in Uttar Pradesh, the nation’s biggest cane grower, will stop crushing until the government fixed a viable cane price, the companies said in separate exchange filings.

“Indian mills are caught between the rock and hard place,” Michael McDougall, head of Brazil desk at Newedge Group in New York, said in a phone interview yesterday. “It makes no financial sense for the mills to carry out operations. International prices are not helping either.”

Indian producers are reeling under a rule that allows states to fix cane rates to help about 50 million farmers, a powerful voting bloc, earn more. A smaller Indian crop may reduce a global glut, potentially boosting futures traded in New York that have plunged 51 percent from the 30-year high reached in February 2011.

Price Slump

Local prices have tumbled to almost a 17-month low, prompting factories in the top two states accounting for 62 percent of the nation’s output to sell below cost. Mills in Uttar Pradesh owed farmers as much as 24 billion rupees for cane supplied in the last season and that figure may rise to as much as 130 billion rupees by April if they paid 280 rupees in 2013-2014, Verma said.

Sugar mills in Uttar Pradesh began to announce on Nov. 19 that they were shutting down over the cane price.

Bajaj, India’s biggest producer, reported a record loss in the three months to Sept. 30, while Balrampur Chini Mills Ltd. (BRCM), the second-largest, posted its second straight quarterly loss.

It cost mills an average of 36 rupees to produce 1 kilogram of sugar in Uttar Pradesh, while their average selling price at the factory gate averaged about 31 rupees in 2012-2013, according to the Indian Sugar Mills Association.

Stock Rally

Shares of sugar producers rallied in Mumbai yesterday on speculation the government may take steps to stem losses at mills and boost domestic prices, Ajcon Global Services Ltd. said in a report. Bajaj surged 14 percent to 14.95 rupees, the most since May 2009, Dhampur jumped 19 percent to 33.90 rupees, the biggest gain since 2007, Triveni climbed 12 percent to 14.60 rupees and Balrampur advanced 9.9 percent to 49 rupees.

The federal government expects the deadlock to end in the next eight to 10 days and it is exploring four to five options, Agriculture Minister Sharad Pawar told reporters in New Delhi yesterday after the close of stock trading. He didn’t specify what options were being considered.

“By keeping the same price for this year, the profit margin of cane farmers will be either reduced or become negative,” said Sudhir Panwar, president of growers group Kisan Jagriti Sangathan in Lucknow. “Farmers in Uttar Pradesh will cut cane planting and switch to other crops like basmati rice next year. India will be in a sugar cycle again that warrants imports after every two years of surpluses.”

Brazil is the world’s largest sugar producer.

To contact the reporters on this story: Pratik Parija in New Delhi at; Prabhudatta Mishra in New Delhi at

India sugar cane price row to delay crushing start to December

8:22am EST

By Rajendra Jadhav

MUMBAI, Nov 21 (Reuters) – Most sugar mills in India are likely to remain idle for at least the next two weeks – extending a delay to the start of crushing – after the government refused to be drawn into a price dispute.

New Delhi has also held off from announcing any measures to help its ailing sugar industry, such as a hike in import duty on raw sugar, leaving mills’ profits squeezed between high domestic cane prices and cheap imports.

The dispute between mills and farmers is delaying raw sugar shipments from the world’s second-biggest producer and could harden local sugar prices, in turn helping to support global levels.

Farmers are demanding a hike in the cane price to compensate for a rise in fuel and fertiliser prices while millers want to reduce prices in sync with falling sugar prices.

“At the current cane price, crushing is not viable. It means increasing losses,” said an official with Bajaj Hindusthan Ltd , a leading producer that posted a net loss of 5 billion rupees ($80 million) in the September quarter.

Uttar Pradesh state, the country’s biggest cane producer, on Wednesday kept the minimum cane price mills must pay to farmers at last year’s level of 280 rupees per 100 kg. The official at Bajaj Hindusthan said that current sugar prices mean mills can’t afford to pay more than 225 rupees for cane.

India is set to produce surplus sugar for the fourth straight marketing year, which started on Oct. 1. These surpluses have depressed local prices and crimped the ability of mills to pay farmers enough for their cane.


Banks lend to mills based on white sugar prices and mills’ profit margin, which has evaporated due to higher cane prices. Banks are not prepared to provide loans if cane prices stay high, said Abinash Verma, director general of the Indian Sugar Mills Association.

While the federal government has said it is considering measures to help the industry, Farm Minister Sharad Pawar said on Wednesday the cabinet will only take a final decision in 8-10 days.

“Mills are putting pressure on the government to give financial support. Once the government announces relief measures, mills will start crushing some time in the first week of December,” said a Mumbai-based dealer with an overseas trading house.

“This delay can ultimately push back raw sugar shipments by two to three weeks in some cases,” the dealer said, adding that buyers were accepting the delay.

Some sugar mills in Maharashtra have started crushing and producing raw sugar instead of white to fulfil export obligations.

“Mills that have started operations are producing raw sugar as it can be quickly sold to exporters. Mills need money to make cane payments,” said Kamal Jain, a Pune-based broker.

Indian sugar dealers have signed contracts to export nearly 500,000 tonnes of raw sugar between December to February.

The delay in crushing, however, is unlikely to dent the country’s ample sugar production.

“Even if some farmers divert cane for jaggery production due to the crushing delay, that loss would be compensated by a higher recovery rate,” said Ashwini Bansod, a senior analyst at Phillip Commodities India Pvt Ltd.

Jaggery is a coarse, dark sweetener. The sugar recovery rate is higher during December to March than in October-November as the temperature drops. ($1 = 62.5450 Indian rupees) (Reporting by Rajendra Jadhav; Editing by Jo Winterbottom/Ruth Pitchford)

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: