Maharashtra sugar factories getting into retail sales to rein in liquidity issues

Financial Express – 13 March 2019: Maharashtra sugar factories are getting into retail sales mode to overcome liquidity issues. Following the opening of the first retail outlet in January outside the gates of Shrinath Mhaskoba sugar factory at Shikrapur in Pune district, the second one will be opened in Pune shortly.

Maharashtra Sugar Commissioner Shekhar Gaikwad on Tuesday visited Sant Tukaram Sahakari Karkhana in Pune district to explain the process involved in the establishment of a factory outlet. He said that the factory had already been selling 5-10 sacks of sugar daily through retail channels and only has to set up a formal outlet outside the factory gate to reach retail consumers.

Gaikwad has been propagating this new model for mills to provide additional revenue stream for factories. Sweet shops, cold drink manufacturers are expected to be the target buyers from such retail outlets. Normally, mills sell sugar to traders, who purchase it in bulk through tenders floated by millers. Once such deals are finalised, wholesale traders pass on the commodity to retail traders in small towns and thereon into the hands of retail consumers. The Commissioner maintains they also have to adopt other models like keeping an inventory of possible buyers who may require sugar in bulk. A mode of this nature could free more stocks to mills and enable more sales, he said.

The Commissioner also suggested a tie-up with 50 cooperative societies that come under Maharashtra Cooperative Development Council for selling agri-products which could include sugar. This is turning out to be a very interesting model, he said.

This outlet opening, however, has come at a time when the Centre has announced a monthly sales quota of 24.50 lakh tonne for mills across the country. And, when sugar prices remain depressed and the Centre has hiked the MSP to Rs 3,100 per quintal.

The intention behind announcing a high monthly quota of 24.5 lakh tonne for March 2019 may be to allow mills to get better revenue and sales. However, if the market requires 20-21 lakh tonne mainly because there were extra quotas in the previous two months, there is no way that the mills would be able to sell more than what the market could want, Indian Sugar Mills Association President Rohit Pawar said.

There were reports of mills here had been selling below MSP due to lack of demand in the market. Overselling by mills in the previous months in anticipation of an increase in government-set floor price has blocked the pipelines reducing demand. Mills have been able to sell only about 85% of the quota allocated to them in the past 10 months.

Welcoming the move of the Sugar Commissionerate, Sanjay Khatal, MD, Maharashtra State Cooperative Sugar Factories Federation, said such experiments might work on a stray basis. The practical feasibility of establishing retail outlets on a mass scale by mills needs to be seen and the cost benefit ratio has to be established, he added.

“Right now, there is little demand in the market and we have been getting reports of factories selling below MSP. Retail outlets cannot sell below MSP and currently, small consumers such as sweet shops or cold drink manufacturers get their sugar delivered at their premises which may not be the case here.” Moreover, such retail outlets would require more manpower, which would add to salary overheads, Khatal said, adding consumers would expect lower prices.