UP sugar mills upset over state advised price

The Uttar Pradesh sugar industry has swung into action to chalk out a legal strategy to challenge the new state advised price (SAP) of sugarcane declared by the Mayawati government on Saturday. UP government has declared a price of Rs 140 a quintal for 2008-09 (October-September) season. Until the issue is resolved legally, mills are not willing to commence crushing operations.

This would have serious implications for the UP sugarcane farmers who would be under pressure to vacate their fields in favour of wheat. This might also prompt the gur producers to squeeze farmers to sell sugarcane at a lower price. Currently, gur producers are buying sugarcane at Rs 100-110 a quintal.

For the last two consecutive seasons, the UP industry has taken recourse to a legal route against the mechanism of SAP fixation by the UP government. In both cases, the Supreme Court declared a price lower than the SAP.

“This price is simply unworkable. Our association is discussing the issue with legal experts and a case would soon be filed at the High Court,” said a top industry official. All UP-based companies said they are certain to incur a significant loss if they crush at the SAP of Rs 140 a quintal, which is Rs 30 higher than last season’s price.

Reacting to the new SAP, shares of leading sugar companies touched their 52-week low and were the top losers on the Bombay Stock Exchange on Monday even as the Sensex gained 247 points. Balrampur Chini lost 12.67 per cent to close at Rs 45.85 while Bajaj Hindusthan lost 8.67 per cent to close at Rs 53.70.

“The new price is highly negative for the UP industry. They might take the legal route to challenge the price. Mills are not in a financially-sound position to pay the price of Rs 140,” said Vikram Suryavanshi, an analyst at Karvy.

Sugar prices that are currently ruling at Rs 1,750 a quintal (ex-factory) in UP may not cross the Rs 1,800 mark though the domestic output is projected to decline 17 per cent to 22 million tonnes, said industry sources. Globally too, the prices are on the decline. The sharp drop in the crude oil prices has affected the demand for ethanol. Consequently, Brazil, the largest sugar producer could look at diverting more sugarcane to sugar. This would exert further pressure on prices.

“If mills pay Rs 140 at a sugar realisation of Rs 1,800 a quintal, they are bound to incur a loss of about Rs 130-140 on every quintal of sugar produced,” they added. The industry suffered huge losses during the last two seasons owing to a combination of factors including the record output, government’s price control measures and higher sugarcane price.

This had prompted the industry to challenge the mechanism of SAP fixation by UP government in 2006-07 and 2007-08 seasons.