Maharashtra: Financial crunch, short margin plague sugar mills

Short margin is a condition when sugar prices fail to cover the advances given to mills by banks. In such a scenario, mills are required to pay the “shortfall” to banks before sugar sale starts.

The quantum of the short margin problem is estimated to be around Rs 1,000 crore in the state.

Sugar mills in Maharashtra are facing a financial crisis, which has stopped many of them from undertaking the necessary overhauling and maintenance work before the start of the next season. Almost all the mills have run into the problem of ‘short margin’, which has made them ineligible for preseasonal loan necessary for undertaking such work. This comes just months before the start of the next season, which has reported a bumper cane crop on an estimated over 11 lakh hectares.

Short margin is a condition when sugar prices fail to cover the advances given to mills by banks. In such a scenario, mills are required to pay the “shortfall” to banks before sugar sale starts. Defaulting mills risk their accounts being termed NPA after 90 days following which they become ineligible for loans. At present, the quantum of the short margin problem is estimated to be around Rs 1,000 crore in the state.

Jaiprakash Dandegaonkar, vice-president of the Maharashtra State Cooperative Sugar Factories Federation, said mills had failed to pay labour contractors necessary to book labour for next year. “Normally such contracts are finalised by the end of May but this year we have not been able to do so,” he said. Similarly overhauling of the mills have stalled due to lack of capital. Many mills, Dandegaonkar added, had not paid their employees for several months. Mills in Maharashtra have run up cane dues over Rs 1,900 crore as of May 15.

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Last week, Union minister Nitin Gadkari, along with Chief Minister Devendra Fadnavis and Rural Development, Women and Child Welfare Minister Pankaja Munde, met a delegation of mill owners. The millers urged the government to intervene to create a buffer stock of 50 lakh tonne, fix a minimum selling price for sugar, introduce a release mechanism for a year to regulate the sale of sugar and convert short margin into working capital loan. “It has been done twice in the past and should be allowed again,” he said.

While mills have finalised export contracts, Dandegaonkar said because of the short margin problem they are not able to send out their shipments. “Banks should be instructed to let the sugar for overseas markets leave without payment of margin money. Liquidity is a major problem for us now,” he said. Over the past few days, sugar prices have seen a slight jump with ex-mill prices in Maharashtra being Rs 2,700 per tonne. Prices in UP are around Rs 3,000 per tonne.

Parthasarathi Biswas

Partha Sarathi Biwas is an Assistant Editor with The Indian Express with 10+ years of experience in reporting on Agriculture, Commodities and Developmental issues. He has been with The Indian Express since 2011 and earlier worked with DNA. Partha's report about Farmers Producer Companies (FPC) as well long pieces on various agricultural issues have been cited by various academic publications including those published by the Government of India. He is often invited as a visiting faculty to various schools of journalism to talk about development journalism and rural reporting. In his spare time Partha trains for marathons and has participated in multiple marathons and half marathons. ... Read More

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