Uttar Pradesh resolves sugar cane price row, crushing to start

NEW DELHI (Reuters) - Sugar mills in India's top cane producing state will soon start crushing cane after they temporarily resolved a dispute with the local government over how much to pay farmers, officials said on Sunday, ending a standoff that could have hit exports.

Uttar Pradesh has kept cane prices unchanged at 280 rupees per 100 kg despite domestic ex-mill sugar prices falling about 8 percent, prompting mill owners to demand a cut in cane prices and delay crushing that typically starts in early November.

But the mills have now agreed to start crushing after the state government allowed them to pay farmers in two tranches and waived some taxes.

"The sugar industry of Uttar Pradesh ... announced commencement of crushing operation for season 2013-14, despite operations being unviable at the present cane price," said Deepak Guptara, secretary of the state sugar mills association that had sought to pay 225 rupees per 100 kg of cane.

"The state government has assured that a long term viable cane price fixation formula would be worked out so as to ensure long term viability and growth of the industry."

The government ordered the 123 sugar mills in the state to start crushing by December 7, Uttar Pradesh's top bureaucrat said in a statement.

The delay in crushing already means India's sugar production could slip 2.4 percent to 24.4 million tonnes in the year to September 2014, federal Food Minister K.V. Thomas said earlier this week.

While stocks remain comfortable and output is still likely to exceed demand, the slide could crimp exports from the world's second-biggest producer and give some support to sagging global and domestic prices.

(Reporting by Krishna N Das; Editing by Mark Potter)