From paucity to excess, why sugar mills in India now face a financial crisis due to better yields

As of Wednesday, India has produced 187.15 lt, which is just 6.15 lt short of the 193.30 lt produced on January 31, 2023.

Maharashtra and Karnataka which were supposed to be the trouble spots due to drought have improved their position with millers talking of better yields due to the unseasonal rains.

Bhairavnath B Thombare, chief managing director of Latur-headquartered Natural Sugar and Allied Industries that operates two sugar mills in Maharashtra, said they feel Maharashtra’s sugar production would be around 95 lt.

“As of January 31, the state has already produced 65 lt of sugar. None of the mills will close before March 31. So we are confident that the production figure would be around 95 lt or more,” he said. The country’s production as per the trade bodies would be around 313.50 lt.

Increased production might have tided over the fear of sugar shortage, but has put the industry in a not-so-sweet spot.

Anticipating a shortage in sugar supplies, the central government had last year banned the export of sugar and capped the diversion of sugar for production of ethanol at 17 lt. Also, oil marketing companies (OMC) had preferred ethanol produced from C molasses rather than that produced by B-heavy and sugar syrup.

Ethanol, when produced form C molasses would see maximum extraction of sugar from cane juice and hence preferred by the government and the OMCs.

For millers, the increased production has caused a new problem – cash flow. At present, ex-mill price (the price at which mills sell sugar is between Rs 3,400-3,500/quintal – a sharp drop of Rs 200/quintal from the prices at the start of the season.

Thombare said the cap on diversion is going to hurt the mills financially. “Also production of ethanol from B-heavy molasses and syrup is adding to our financial constraints,” he said

Thombare, who is also the president of the Western Indian Sugar Mills Association (WISMA) said the millers have asked for diversion of another 17-18 lt of sugar production of ethanol.

“The government should allow 7 lt of sugar syrup and 12 lt of B-heavy molasses for the production of the fuel additive,” he said.

The government has incentivised the production of ethanol form C molasses, but millers say the returns on their investment comes only from ethanol produced from syrup or B-heavy molasses.