UP govt wants early start for crushing; sugar mills not ready over arrears

UP's mills have already expressed their inability to participate in the next crushing season due to high arrears and the paucity of working capital

The domestic sugar market glut and farmers' outstanding dues of about Rs 170 billion, coupled with a bumper sugarcane crop for the next crushing season 2018-19, have all the makings of another crisis-ridden sugar cycle ahead. 

In this backdrop, the Yogi Adityanath government has directed mills to start their crushing operations early from October 15 onwards with the units in Western UP taking the lead.   

Of the total arrears of Rs 170 billion, UP mills, totalling 119, owe the highest of about Rs 112 billion, followed by those in Maharashtra at Rs 11 billion. The state's mills, dominated by the private sector, which accounts for 94 units, have already expressed their inability to participate in the next crushing season due to high arrears and the paucity of working capital to pay for the routine maintenance and repair of their units before the next season. 
 

Owing to higher pan-India estimated cane acreage of 5.44 million hectares in 2018-19 -- 8 per cent higher compared to the previous season -- the sugar production has been pegged at almost 35.5 million tonnes (MT) by the Indian Sugar Mills Association (ISMA).

Higher production estimates, coupled with steep current inventory with mills -- especially in UP where total unsold stock during the 2017-18 season is estimated at 5 MT, or 40 per cent of the total output of 12 MT -- would also pose storage problems with the units, not only for sugar but for other byproducts, mainly molasses, as well.

UP cane commissioner Sanjay Bhoosreddy has directed Western UP mills to start operations between October 15 and November 5, while mills in Central UP have to commence operations between October 25 and November 10, followed by Eastern UP mills between November 10 and November 25. 

The state's cane acreage is estimated to have increased at its highest rate of 10 per cent to 2.3 million hectares. Earlier, the chief minister had asked officials to ensure that mills started operations early for allowing farmers to empty fields for the sowing of Rabi (winter) crops, especially wheat. With the 2019 Lok Sabha polls approaching, the government does not want to antagonise 4 million farmer households engaged in sugarcane farming.

The cane department officials have been asked to inspect off-season repair and maintenance of mills so that they are ready for operations according to the schedule drawn.

"Most of the private sugar mills have yet not started their repair and maintenance works in UP due to the cash crunch and, as such, no mill would be in a position to start crushing before November," a sugar company official told Business Standard on condition of anonymity.

Bhoosreddy said that there were challenges before the sugar industry and that the Centre and the state governments were trying to sort them out. "We are keeping a watch on the unfolding situation and coordinating with the mills for the coming season," he added. 

In June, the Centre had announced a Rs 70-billion package to ease liquidity in the sugar sector, while fixing minimum selling price of white (refined) sugar at Rs 29/kg. Besides, the Cabinet Committee on Economic Affairs (CCEA) announced the creation of a buffer stock of 3 MT, subject to review by the Union Food Ministry. 

While these measures stopped the sugar price crash, the mills, especially in UP, claimed that the central package was grossly insufficient to bail them out, owing to large unsold inventory and cash crunch.

ISMA Director General Abinash Verma said that an early start of the domestic crushing season would be in the interest of all stakeholders, yet mills would find it difficult to start operations unless the standing issue of bank loans was sorted out. He said that mills in Maharashtra could also start by the first week of October, which would put the pressure on UP mills to follow suit to avert diversion of cane even if their payment capacity was unviable.

"There is a multitude of issues facing the sugar industry, including market glut, unsold inventory, arrears, export halt, storage capacity crunch, higher output estimates for next season and working capital squeeze. The government needs to take a holistic approach to resolve these challenges, else the next season would also see a build-up of massive arrears," he added.