Cane shortage forces sugar mills in South to operate at 25% capacity

Rise in production cost, reduction in sugar prices increased pressure

Even as all-India sugar output is expected to rise 25 per cent this year, sugar mills in south India are reeling from low production and very low cane utilisation.

While one side is feeling the pressure of drought, which resulted in low capacity utilisation, mills are facing increasing fixed costs and price drops, which are impacting their financials.

The Indian Sugar Mills Association data shows in Andhra Pradesh and Telangana, 21 sugar mills produced 190,000 tonnes of sugar till December 31 and this is 16,000 tonnes less than what was produced by 25 mills in the 2016-17 sugar season (SS) till December 31, 2016. The sugar season is October to September.

In Tamil Nadu, 20 sugar mills are in operation as compared to 34 mills on December 31 last year. Mills in Tamil Nadu produced 170,000 tonnes of sugar till December 31, 2017, as against 186,000 produced last year on the corresponding date.

A Vellayan, executive chairman, Murugappa Group, which owns EID Parry, said Tamil Nadu was impacted due to three years of drought, and this year “we will see the weakest crop ever”.

“Forty per cent of our volumes comes from Tamil Nadu, the rest from Karnataka and Andhra Pradesh. Fortunately, we have moved to other states and they are in better shape. We are going to see a balanced situation this time. We will be better placed than people who are dependent only on Tamil Nadu,” said Vellayan.

N Ramanathan, managing director, Ponni Sugars, said cane volumes for all players in Tamil Nadu had been coming down year after year. So lower sugar recovery has strained earnings, according to him. He added the cost of production increased to ~50 a kg, at 20-25 per cent capacity utilisation, from ~30-36 a kg, when the capacity utilisation was 95-10 per cent. This cost is much more than the market price.

The sugar production capacity of Tamil Nadu mills is close to 3 million tonnes.

Ramanathan said the area under the sugar crop had been shrinking, the quality had started deteriorating, and the sugar content in cane was drying up, adding, as a result, from a peak of 2.55 million tonnes of production four-five years ago, last year around 1.2 million tonnes were produced. And this season production would be around 600,000 tonnes, which is hardly 25 per cent of the capacity, he said.

Vellayan said next year output would be at the same level or marginally higher. Consumption and production are more evenly matched. Prices will remain stable at this level at ~33-34.