Karnataka starts seizure of sugar stocks as mills fail to pay farmers

The government has till now seized sugar stocks from 12 mills in northern parts of the state after mills refused to pay cane arrears for 2013-14 amounting to Rs 925 cr

Sugar mills in Karnataka are in deep trouble as the state government has decided to seize sugar stocks from factories for failing to pay Rs 200 per tonne sugarcane arrears to farmers for 2013-14. As many 49 factories have not paid sugarcane arrears, amounting to a combined Rs 925 crore.

Chief minister Siddaramaiah took the decision to seize their sugar stocks after the meeting convened by him with sugar mill owners failed to arrive at a consensus late on Wednesday evening. The state government had asked mill owners to clear the dues as directed by the High Court and abide by the decision of the state legislature. However, mills expressed their inability to pay the arrears as they have run into huge losses following the huge crash in the sugar prices.

"Sugar prices crashed from a high of Rs 3,000 per quintal to Rs 1,900 per quintal making us run into huge losses. We are not in a position to pay arrears to farmers. We told the government to pay farmers on our behalf as we have not made an exemption towards purchase tax. But, the government did not listen to our problems," said Pawan Kumar, President, South Indian Sugar Mills Association, Karnataka.

He said, mills are ready to even pay the purchase tax for 2015-16 provided the government comes to their rescue. The factories will not be able to pay farmers even the fair and remunerative price (FRP) for 2015-16 crushing season as most of them are not in a position to even borrow the working capital from banks, he said.

"A large number of sugar mills have pledged their sugar stocks to banks and borrowed money. If the government seizes sugar stocks, which is pledged mills will fall into much deeper trouble and will not be able to repay loans to banks and face much more difficulty in borrowing funds for the next crushing season," Kumar said.

For the year 2013-14, the state government had fixed Rs 2,500 per tonne as the cane price which was 19 per cent higher than the FRP fixed by the Central government. The state government had also paid Rs 150 per tonne as support price to farmers. However, sugar mills across the state had paid an FRP of only Rs 2,100 per tonne and defaulted on payment of the remaining Rs 400 per tonne.

Sugar mills had moved the Karnataka High Court against the government order on fixing Rs 2,500 per tonne. Subsequently, the High Court upheld the government order and directed the mills to pay up the price. However, mills had expressed their inability to pay in view of the falling price for sugar in the market. They had appealed to the government to provide them a financial assistance package and bail them out.

Meanwhile, the government has seized sugar stocks from 12 sugar mills in the northern parts of the state on Wednesday.

"Though it will be a distress sale, the government has no other option but to seize the stock and auction it to recover money and pay towards farmers’ arrears," H S Mahadeva Prasad, minister for sugar, said.

For the 2013-14 crushing season, 61 sugar mills in Karnataka crushed 38.40 million tonnes of sugarcane and produced 4.18 million tonnes of sugar with a recovery of 10.98 per cent.