Water Scarcity Claims Another Victim in South Indian Sugar Mills

(Bloomberg) -- Sugar mills in the southern Indian state of Tamil Nadu are facing a roadblock. Scarcity of cane.

EID Parry India Ltd. has mothballed two factories in Tamil Nadu and has shut one factory in nearby Puducherry due to non-availability of cane, said M.M. Murugappan, executive chairman of parent Murugappa group. The group owns 44.89% in EID Parry, according to a statement on the company's website.

EID Parry isn't alone among southern mills facing trouble. Thiru Arooran Sugars Ltd. had to severely slash production due to non-availability of sugar cane at its factories in Tamil Nadu and is staring at bankruptcy after failing to pay its loans, the company said in its annual report. Sakthi Sugars Ltd., another major producer that has been making losses for the past two financial years, has defaulted on loans, it said in an earnings statement on its website. The company is in the process of selling certain non-core assets, it added.

India is home to nearly a sixth of the world's population but gets only 4% of the Earth's fresh water. By 2030, demand is expected to outstrip supply by about 50%, according to the Water Resources Group. Chennai, the capital of Tamil Nadu and gateway to the Indian factories of Hyundai Motor Co. and Ford Motor Co., last month faced the worst water shortage in three decades. It received the lowest rainfall in 15 years in 2018.

Things aren't expected to get much better this year. Weather forecaster Skymet has said the performance of monsoon in India has been lackluster and the entire country is staring at a large rainfall deficit. Rains in Tamil Nadu were 38% less than normal in the month of June, according to the country's weather office.

“The situation continues to be the same again and the failure of the monsoon appears imminent,” said Palani G. Periasamy, president, The South Indian Sugar Mills Association - Tamil Nadu. “We are going to have only 30% capacity utilization in Tamil Nadu and definitely factories will not be in a position to remain viable - some factories may even close.”

Sugar cane acreage in Tamil Nadu is estimated at 230,000 hectares in 2019-20, down about 12% from a year earlier mainly due to deficient rain in 2018, according to the Indian Sugar Mills Association.

To contact the reporter on this story: Ganesh Nagarajan in Chennai at gnagarajan1@bloomberg.net

To contact the editors responsible for this story: Unni Krishnan at ukrishnan2@bloomberg.net, Abhay Singh, Atul Prakash

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