Sugar stocks surge on hopes of govt aid: All you need to know

Shares in sugar companies surged on hopes a government committee headed by Farm Minister Sharad Pawar may decide on Wednesday to announce financial assistance for struggling sugar mills as well as an increase in import duties on raw sugar to halt cheaper imports and strengthen domestic prices.

[caption id=“attachment_868939” align=“alignleft” width=“450”]  alignment of the sugar cane prices to the sugar prices is the only remedy[/caption]

Bajaj Hindusthan rose 16 percent, Shree Renuka Sugars is up 10 percent while Balrampur Chini Mills gained 8.7 percent.

The rally in sugar stocks comes ahead ofa high-level meeting which is expected to discuss a relief-package for the crisis-ridden sugar industry in Uttar Pradesh and Maharashtra.

More from Investing

MSMEs are breaking the traditional convention. Look who’s funding them Scale-up your startup without an investor! Here’s how

Sugar industry in UP and Maharashtra - the two largest producing states - have not yet started crushing sugarcane in the new crop year, which started in October, citing mounting cane arrears and the inability to pay high price to farmers.

The agenda of today’s high-level government includessoft loan to sugar industries and increase in ethanol blending to 10 percent from 5 percent.Sugar cane prices have increased 17 percent on average for the last three years , while sugar prices have been lower by nearly 10 percent year-on-year (Y-o-Y) leading to deep losses by the industry.

Reports say the relief package could include interest-free loans from banks and other measures which are likely to lend the much needed support to these companies which have incurred is close to Rs 3,000 crore.

Finance Minister P Chidambaram, Agriculture Minister Sharad Pawar, Commerce Minister Anand Sharma and Aviation Minister Ajit Singh are among those likely to be present at the meeting.

About 65 sugar mills, including industry leaders like Bajaj Hindusthan, Balrampur Chini and Dhampur Sugar, have suspended operations saying it was unviable for them to buy cane from the farmers at the prices set by the state government. This is becausethe cost of cane is higher than the cost of sugar.This has left millers reeling under losses. Hence they want the price of cane to be at 70% of the revenue realized from sugar, bagasse, molasses and press mud, or at 75% of revenue realized from sugar.

In other words, millers have been demanding the state fix affordable cane prices, in line with the recommendations of the Rangarajan Committee.They have also said that they will not operate till the Rangarajan formula is adopted to fix the cane price, reports suggest.

According to a CNBC-TV18 report, the special advisory price that sugar mills pay to farmers has increased from Rs 165, just three years back to Rs 280, a 70 percent increase. On the other hand, sugar prices have been hiked by just 7-8 percent over the last three years.

In a CNBC-TV18 exclusive with the sugar sector leaders from the UP, on September 23, Vivek Saraogi, MD, Balrampur Chini said “We cannot continue producing at a certain cost which is thrust upon them based on a cane price which is assumed by the UP government. Right now that is Rs 36. Maharashtra, Karnataka produce at Rs 30. So, the ability to now begin crushing is very difficult.”

However, Abhinash Verma, DG, ISMA told CNBC-TV18 on Tuesday that the UP government should link the sugarcane price to the sugar price realisation and must determine a price which is reasonable and buyable for the sugar industry, so that the industry does not have to suffer losses year after year.

Every sugar company in UP is losing money year-on-year. Verma believes Rs 225 per quintal is a viable price for mills to begin operations.

With the general elections round-the-corner, analysts say the government cannot afford high sugar prices for too long and will try and resolve the situation at the earliest.