UP mills say can't pay more than Rs 175/qtl for cane

Barely a week before Uttar Pradesh announces the state-advised price (SAP) for sugarcane, mill owners said they were not willing to pay more than Rs 175 a quintal this season.

“SAP beyond Rs 175 a quintal will be impractical. Mills will not be able to pay more this season,” said Vivek Saraogi, president of the Indian Sugar Mills Association (Isma) and managing director of Balrampur Chini, one of the largest sugar producers in the country.

SAP is the minimum price fixed by the state government for 10 per cent recovery which mills pay to farmers for sugarcane. The price is revised upwards every year. However, SAP has lost its relevance in the last few years with cane prices being determined by independent market forces and availability in the state.

Last year, the state government fixed SAP at Rs 165 per quintal, but sugar mills had to pay Rs 260 per quintal due to low production. SAP is independent of the central government’s fair and remunerative price (FRP) of Rs 129.84 aquintal. During the mid season, prices shot up to Rs 280-285 a quintal for 10 per cent recovery. For 2010-11, the government has fixed sugarcane FRP at Rs 139.12 a quintal.

Analysts expect the government to announce SAP anytime next week, as mills will start crushing by the end of November. “The state government is set to raise cane prices this year as well. But, the quantum is yet to be known. But anything beyond Rs 190 will not be feasible,” said B J Maheshwari, director and company secretary of Dwarikesh Sugar Industries Ltd.

With UP assembly polls due in 2012, the state government is expected to play its cards accordingly, says an analyst.

Sugarcane production is expected to increase 10 per cent to over 300 million tonnes in the 2010-11 crop year on account of improved acreage and yields. Sugarcane production in the 2009-10 crop year stood at 274 million tonnes.

India is witnessing bumper output this season with production estimated at 25 million tonnes and consumption at 25.3 million tonnes.

According to Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories (NFCSF), new varieties of sugarcane have helped improved the yield from 55 tonnes per hectare to 65 tonnes in two of India’s major cane growing states — Uttar Pradesh and Maharashtra.

Sugar prices are currently at Rs 27-28 a quintal (ex-factory). In addition, a cost of Rs 3-4 per kg is incurred on conversion to sugar. Therefore, at 10 per cent recovery at a cane price of Rs 175 a quintal, mills will be able to comfortably pay the farmers. An increase beyond this would result in mounting dues to farmers or closure of mills, said an another analyst said.