Jump in sugar prices, drop in output pull out most UP sugar mills from red

Centre's soft loan and SARFAESI loan amounting to around Rs 10,000 cr disbursed over the last few years has also helped in easing the dues

Sugarcane dues in Uttar Pradesh, country's second biggest sugar producing state, are coming down thick and fast.

UP mills, as per official estimates, had to pay around Rs 14,000 crore to farmers at the start of the 2015-16 sugar season in October. 

Of this, just around 14%, or around Rs 1,975 crore, is pending as on end June. 

Some like DCM Shriram Ltd have cleared the entire 2015-16 cane dues amounting to around Rs 794 crore recently, while there are few more who are likely to clear all their dues by end of July or early August.

Meanwhile, of the Rs 1,975 crore still to be paid as per official estimates, over Rs 1,600 crore accrues to just five mills, which are Modi Sugars, Mawana, Rana Sugars, Simbhaoli and Bajaj Hindustan. 

Bajaj Hindustan is the biggest sugar producer in the state and has more than 10 plants spread across the state.

More than 45% increase in ex-factory sugar rates since January 2016, along with a pick up in ethanol-blending programme, with mills supplying almost 120 crore litres of ethanol for the first time ever ,as against a usual supply of 60-70 crore litres, has ensured that mills have some operational leeway to clear their dues. 

The Centre’s soft loan and SARFAESI loan amounting to around Rs 10,000 crore disbursed over the last few years has also helped in easing the dues. The mills have exported around 1.7 million tonnes of sugar under a incentive programme, which was transferred directly into the bank account of sugarcane farmers. 

The direct incentive amounted to around Rs 4.50 per 100 kilograms of sugar.

The Uttar Pradesh government too played a big part in easing the crisis. In 2015-16, it created three slabs for disbursal of relief to sugar millers. 

As per the slabs if the ex-mill price of sugar dropped below Rs 3,100 per quintal, the state government provided a Rs 50 per quintal relief on the fixed price of RS 280 per quintal. In this relief, around Rs 28.60 was transferred directly into the bank account of farmers, while the remaining was passed on to millers in the form of tax incentives.

The second slab said that if the ex-mill price of sugar was more than Rs 3,100 per quintal, but less than Rs 3,400 per quintal, the sugar mills got a relief of Rs 12.50 per quintal. And, if the ex-mill price was above Rs 3,400 per quintal, no relief was provided.

With sugar prices remaining below Rs 3,100 per quintal atleast during the start of season, the mills managed to get some benefit.

More than this year, the Rs 2,300-crore package announced by the state for 2014-15 sugar season, which included a rebate of Rs 40 per quintal on the SAP by way of direct transfer and tax relief proved to be a big boost to the sugar factories, in clearing their 2014-15 dues and also somewhat easing the situation in 2015-16.

These steps and an overall drop in production in 2015-16 due to drought in several parts of Maharashtra and Karnataka pushed up sugar prices.

However, when the prices showed an unnatural increase, the Centre intervened and climbed down on export incentives and hoarding.

Officials said the Centre feels that mills charging anything more than Rs 34 per kg (ex-factory) for sugar is unjustified and should be controlled. 

On the other hand, millers feel, given the rate of recovery from cane and falling cane supplies, an ex-factory price of at least Rs 37 a kg is justified.

This should translate into a retail sugar price of about Rs 44 a kg or Rs 3-4 a kg more than the prevailing rate. India’s sugar production in 2015-16 is estimated to be 25-25.5 million tonnes, while consumption is estimated at 26 mt.