UP mills to pay 20% more for cane

Additional burden of Rs 2,500 crore on industry, besides Rs 600 crore of arrears in payments.

In a major blow to the sugar industry, the Mayawati government in Uttar Pradesh, the country’s second-largest producer of the sweetener, has raised the mandatory State Advised Price (SAP) for sugarcane by a little over 20 per cent. The already ailing industry will have to bear an additional burden of Rs 2,500 crore.

The SAP for the high-yielding early variety has been raised to Rs 250 from Rs 210 a quintal last year, while that of the normal variety has been increased to Rs 240 from Rs 205 a quintal last year.

The state has four million cane farmers and, with legislative Assembly elections due in the state in 2012, all political parties want to woo farmers. “Millers should start crushing, so that the farmers get their field vacant for wheat sowing on time and they do not get entangled in the web of moneylenders,” Mayawati said.

“The additional cane price will result in at least a 17-18 per cent rise in average cost of production, to Rs 33-34 per kg from Rs 27-28 per kg last year. This means consumers will have to be ready to pay Rs 36-37 to buy a kg of sugar this year,” said Abinash Verma, secretary-general of the apex trade body, Indian Sugar Mills Association.

The government of Uttar Pradesh has estimated 70 million tonnes of cane would have to be crushed this year as compared to 60 mt last year. It forecast a 9.3 per cent recovery rate this year as compared to 9.2 per cent last year.

“We hope to produce about 6.2 million tonnes (mt) of sugar this year, compared to over 5.8 mt last year,” Uttar Pradesh Cane Commissioner Kamran Rizvi told Business Standard.

“Its repercussion on the industry will be severe if the government tries to keep the price (of sugar) at the current level of Rs 27-28 a kg (ex-factory). The working capital will erode after two months and farmers’ arrears will go up sharply. Default on banks’ loans would start by the first fortnight of January. Hence, the government should take some measures to raise the ex-factory price immediately,” said Verma.

The sugar industry commonly clears farmers’ dues in six months, while they get the realisation from sugar until 12 months. Mills are obliged to procure cane from farmers. To protect working capital from erosion, the government must provide easy bank loans to sugar mills, demanded a senior industry official.

The realisation was lower than the cost of production for most of last year and the arrears in payments total Rs 600 crore in UP. A mill owner said if the government did not allow decontrolled sale of sugar, the arrears would multiply several times this season.

On Tuesday, the share prices of sugar companies closed with a mixed trend. Triveni Sugar ended 4.6 per cent up on the Bombay Stock Exchange, while Balrampur Chini and Bajaj Hindusthan fell between 1.5 to 2.5 per cent.