Quarter of UP sugar mills shut as losses mount

Mills in the state have run up cane arrears of over Rs 5,600 cr for the current season

Sugar mills in Uttar Pradesh, India's second biggest cane growing state, are again staring at a year of mounting losses, rising debt and unpaid arrears to farmers.

Of the 118 sugar mills in the state, 29 private ones have shut operations before the financial year-end for want of sugarcane and to cut losses, five more than at the same time last year.

The distress among sugar mills is caused by the fall in prices on successive bumper harvests and the high state-advised cane price in Uttar Pradesh.  Sugar production in Uttar Pradesh till March 15 was 5.62 million tonnes, 10.94 per cent more than last year. Sugar production nationally in 2014-15 is expected to be 26.5 million tonnes, 1.7 million tonnes more than the projected consumption of 24.8 million tonnes.

The cost of producing sugar in Uttar Pradesh is Rs 3,500 a quintal, while the selling price has fallen to Rs 2,600 a quintal. Millers in the state are losing almost Rs 100 on every quintal of sugar sold. The cost of production is high because Uttar Pradesh has a state-advised price of Rs 280 a quintal for the 2014-15 sugar season that will end in September.

The crisis also reflects the cyclical nature of the sugar industry and lack of regulation during good harvests. Sugar supports the livelihood of 4 million cane farmers in Uttar Pradesh. Mills in the state have run up cane arrears of over Rs 5,600 crore for the current season, assuming the cane price is partly paid at Rs 240 a quintal.  If Rs 20 a quintal is added after the crushing season closes in September, the unpaid dues could be Rs 9,500 crore.

Cane dues across the country, including in Maharashtra, the country's biggest producer, are projected at Rs 17,000 crore by March 31, 2015, a record high.

Uttar Pradesh at the start of the 2014-15 crushing season had allowed deferred payment for cane. Mills were required to pay Rs 240 a quintal upfront against the state-advised price of Rs 280 a quintal for the season.

Uttar Pradesh is the only state in the country  where confrontation between sugar mills and farmers is an annual feature. Each crushing season witnesses multiple court cases. On March 25, the Allahabad High Court directed the Mawana and Modi mills to clear their cane dues for the last crushing season by April 20.

These groups, along with a couple of other private mills, have Rs 325 crore in cane dues from the last crushing season despite court orders and action by the state government.

"Unless the central government steps in to regulate sugar during excess cane harvests, the crisis will continue in Uttar Pradesh," Sudhir Panwar, president of the  Kisan Jagriti Manch and professor at Lucknow University, told Business Standard.

He noted the sugar industry was in favour of the Rangarajan committee report, which advocated payment of 75 per cent of prevailing sugar prices to farmers as purchase price, while the rest would depend on realisation from byproducts of sugar.  But state governments have not agreed and have set up their own committees to determine the cane price.

BITTER GRANULE

• 34*
  Of the 118 sugar mills in the state close operations ahead of March 31
• Rs 5,600 cr
  Expected total cane arrears in the state in 2014-15
• April 15-20
  Most mills expected to close their annual sugarcane crushing
• Rs 17,000 cr
  Total cane arrears in the country expected to rise by March 31, 2015
• Rs 4,000/qtl
  Export incentive for raw sugar to enable mills wipe off some of the surplus

* 29 private mills + 5 co-operative mills