With world sugar production expected to outpace consumption for the third year in a row, sugar prices have been on a continuous climb down. With sugar stocks hitting a 5-year high in the country, there is little scope for its liquidation at the current juncture, according to A. Vellayan, Chairman, E.I.D. Parry.
Even as sugar prices had been falling, the governments – both at the Centre and in States, had hiked cane prices significantly, he pointed out. As a consequence, margins had got squeezed for most producers, Mr. Vellayan told shareholders at the annual general meeting of the company held here on Tuesday.
Mr. Vellayan said the profitability of sugar companies would be hit further given the possibility of a further increase in cane prices, especially with the general elections round the corner.
Based on Dr. C. Rangarajan Committee report, the Cabinet Committee on Economic Affairs had decided to do away with levy obligation for sugar produced from October last year. Further, the sugar release mechanism had been dismantled to confer greater freedom on industry for managing its cash flows. The decontrol was the first step in the right direction, Mr. Vellayan said. However, it was imperative that a long-term formula on cane price with linkage to revenues from sugar and its by-products should be evolved soon to address the cyclicality in sugar production.
Shareholders wanted the company to increase the production of ethanol to meet the needs of oil marketing companies. However Mr. Vellayan said the prices offered by OMCs were way below the international prices.
Meanwhile, the company reported a lower turnover (standalone) of Rs. 403.13 crore in the first quarter ended June 30, 2013 against Rs. 576.46 crore, with a net loss of Rs. 72.31 crore against a net profit of Rs. 22.47 crore.