UP farmers enter into distress sale of cane to jaggery units

Farmers want to vacate the field for early wheat sowing, delay in sugar mills' crushing offer least choice

With the refusal of sugar mills to commence production, cane farmers in Uttar Pradesh, the second largest sugar producing state after Maharashtra, have started distress sales of their produce to jaggery units, at a substantial discount to the Fair and Remunerative Price (FRP) set by the central government.

Jaggery units, termed kolhus, are purchasing high-quality cane at Rs 180 a quintal against the FRP of Rs 220 a qtl for the crushing season 2014-15 (October–September).

The farmers’ move is aimed to vacate the cane field for early wheat sowing, before December. They are also entering into forward contracts with jaggery units at even Rs 150-160 a qtl for cane, as sugar mills have intended not to commence crushing until the state government and the Centre jointly decide the final cane policy, at a level they consider reasonable, for the 2014-15 crushing season.

“We had submitted a joint statement in July to the government, highlighting our inability to commence crushing this season. Almost three months have passed. Lots of meetings took place. But, no decision has been taken yet on cane policy. Unless a concrete cane policy is determined, sugar mills will not be able to commence crushing this season,” said Abinash Verma, secretary-general, Indian Sugar Mills Association (Isma).

Large private sector mills such as Bajaj Hindusthan, Balrampur Chini, Simbhaoli Sugars and Dwarikesh Sugar had voiced concerns in July on the continuous losses over years in production of sugar. Of 95 mills in the state, 66 have not started what is called maintenance, the pre-crushing cleaning of machines and evacuation of cane storage area, which marks the beginning of sugar production. These mills account for 75 per cent of sugar production in the state.

Cane farmers are a major vote bank for any political party in UP. Hence, the current government has opted for a State Determined Price for cane at Rs 280 a qtl, 27 per cent higher than the Centre's FRP. Now, due to a sustained fall in sugar prices, the overall ex-factory realisation for mills works out to Rs 3-4 a kg lower than the cost of production during the past season (October 2013- September 2014).

“Most sugar mills are not in a position to pay even FRP to farmers for cane procurement, due to sustained losses. We are not sitting here for a charity work. We are answerable to our shareholders, lenders and employees. Once we know that we will incur losses from the very first day, it is better not to commence operation,” said a senior official of a large sugar mill.

“No business can run without profit. Hence, our business should also be economically viable,” said Sanjay Tapriya, chief financial officer of Simbhaoli Sugars.

The state government has been insisting the mills clear cane arrears, now around Rs 3,000 crore, a steep decline from the Rs 12,000 crore during the peak crushing season in February-March this year.

Assuming all issues are settled today, with a workable cane policy, mills will take at least 40-45 days more of maintenance, over and above at least 15 days of raising working capital for firing the boilers. This means crushing for the 2014-15 season will not begin before December 15, a delay of close to 80 days from the norm.

The delay could also affect output, which Isma forecasts at 25.3 million tonnes this year. With 6.5 mt, UP contributed around 25 per cent of India’s total sugar output of 24.3 mt in 2013-14.