New UP govt set to face Rs 5,000-cr sugarcane dues

When a new government takes charge of the country’s most populous state this month, the rapidly mounting sugarcane arrears will be one of the several challenges before it.

The arrears have jumped to over Rs 2,600 crore in Uttar Pradesh — the country’s biggest sugarcane producing state. It is home to seven million sugarcane farmers and top sugar companies. Another Rs 1,100 crore is pending for two past seasons following a Supreme Court judgment in January.

No wonder when Prime Minister Manmohan Singh was campaigning for his party in Amroha last week, he raised the issue of delayed payment to sugarcane farmers. Being the biggest state and accounting for the highest number of Lok Sabha seats (80) among all states, Uttar Pradesh just held its Assembly elections, seen as a key trend for the next parliamentary elections in 2014.

The sugar season (October-September) saw the industry procuring cane worth Rs 14,200 crore, to produce 5.35 million tonnes(mt) sugar. This year, the state is expected to produce 6.5 mt of sugar.

According to executives of the state sugar mills association, cane arrears have touched ‘uncomfortable’ level, as there were negligible arrears this time last year. Officials attribute the situation to a 20 per cent rise in sugarcane price by the state government, lower recoveries (per cent sugar produced from cane), low sugar realisations and high borrowing costs. The recovery rate this season stands at 8.86 per cent, lower than 9.01 per cent last year. “The mills are realising Rs 29 per kg, against a production cost of Rs 33-34 per kg in UP,” said a leading miller. “This has exhausted the working capital of mills and delayed payments.” Under Mayawati’s regime as chief minister, beginning mid-2007, sugarcane prices have moved up 84 per cent against the 30 per cent rise during Mulayam Singh’s tenure.

UP and Uttarakhand declare their own sugarcane prices which are often higher than that declared by the central government. The changed economies due to high sugarcane prices has led to no new sugar mill being set up in UP in six years.

With sugar prices likely to remain below the cost of production and an extended crushing season, sugarcane arrears will continue to surge. Industry watchers see arrears touching Rs 5,000 crore in a month.

However, the industry is hopeful the central and state governments will take note and offer financial assistance through creation of buffer stock, more sugar exports and interest free loans from banks against central excise duty paid and payable.