UP sugar mills to raise SAP issue with govt

Uttar Pradesh accounts for about 20% of country's sugar production of about 25 mn tonnes

Officials from sugar mills in Uttar Pradesh are set to meet the cane commissioner on Thursday to convey their concern at the state advised price (SAP).

“A meeting has been scheduled with the cane commissioner on Thursday. We are going to raise the issue of viability of sugar production. At current prices, running sugar mills is not viable at all,” said Deepak Guptara, secretary of the Uttar Pradesh Sugar Mills Association. The second-largest  producing state, it accounts for about 20 per cent of the country’s  annual production of about 25 million tonnes.

On November 12, the state government had announced an SAP of Rs 280 a quintal for the 2014-15 season, unchanged for a third consecutive season. It allowed mills to pay cane prices in two tranches—mills were asked to pay Rs 240/quintal within 14 days of the purchase and the remaining Rs 40 within three months of the end of the crushing season.

“Mills will face a Herculean task to convince banks to give working capital loans. The state government has allowed mills to avail such loans of up to 85 per cent of the value of their output last year. From that, mills will have to pay 85 per cent of the loan amount, which works out to 72 per cent of the last year’s stock value, as cane prices. So, the issue of viability remains; we will raise this at our scheduled meeting with the cane commissioner,” Guptara said.

As such, mills will be able to pay only Rs 205 a quintal from working capital loans, leaving a shortfall of Rs 35 (owing to the mandatory upfront payment of Rs 240 decided by the government). The government has also announced a provision of Rs 20 a quintal (Rs 15.2 of reimbursement and Rs 4.8 of exemption) of various levies; the remaining Rs 20 is to be accounted for by sale of products.

“The industry, therefore, will urge the government to pay the reimbursement amount in advance so that mills can start crushing in a smooth manner,” said a senior official in the sugar sector.

As of now, only eight to nine crushing units have started operations. Guptara believes about 100 mills will start crushing by the end of November.

Surplus global sugar stocks have kept international sugar prices suppressed for four consecutive years. This has not only squeezed the margins of firms, but also led to closure of mills and consolidation in the sector. Domestic sugar prices have also remained subdued.

“For the first time, the state government has recognised the fact that the paying capacity of UP sugar mills has worsened,” said Abinash Verma, director general of the Indian Sugar Mills Association.

Earlier, the Allahabad High Court had mandated all sugar mills in the state clear cane dues by October 31. As of October 14, cane arrears stood at Rs 2,800 crore.