 "UP sugar mills step up unviability issue")
Faced with the State Advised Price (SAP) fixed by the Uttar Pradesh government not viable to start crushing for the current season, the state sugar mills are meeting with the Cane Commissioner on Thursday to convey their dismay and extend demand for further relief.
"A meeting has been scheduled with the Cane Commisisoner on Thursday where we are going to raise viability of sugar production. At the current sugar price, running sugar mills is not viable at all," said Deepak Guptara, Secretary, Uttar Pradesh Sugar Mills Association (UPSMA).
Uttar Pradesh, India's second largest sugar producing state, contributes around 20% of India's sugar production at around 25 million tonnes.
The Uttar Pradesh government on November 12 had announced SAP of Rs280 a quintal for the sugar season 2014-15, unchanged for the third consecutive season.
But, the government allowed mills to pay cane price in two trenches, thus providing them a marginal relief. The mills would be required to pay Rs 240 a quintal within 14 days of the cane purchase and the balance Rs 40 a quintal within three months of the end of crushing season.
"Mills will face a herculean task to convince banks for availing working capital loan as the state government has allowed mills to avail such loan upto 85% of the value of their output last year. Of that, mills will have to compulsorily pay 85% of the loan amount working out to 72% of the last year's stock value as cane prices. So, viability issue still continues which we are going to raise in our scheduled meeting with the Cane Commissioner," said Guptara.
From the working capital loan, mills will be able to pay only Rs 205 a quintal for cane, leaving still thereby a gap of Rs 35 a quintal which needs to be paid to farmers as a mandatory upfront price of Rs 240 as decided by the government.
The government has also made a provision of Rs 20 a quintal (Rs 15.20 reimburse + Rs 4.80 as exemptions) of various levies and the remaining Rs 20 a quintal through by products sale.
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"The industry, therefore, would urge the government to pay reimbursement amount in advance so that mills can start crushing smoothly," said a senior industry official.
Owing to the standoff between the UP sugar millers and the government, the commencement of cane crushing was delayed. Hardly 8-9 crushing units have started as on today due to delay in maintenance work at mills. Guptara believes around 100 mills would start crushing by the end of November.
Meanwhile, the global sugar stock surplus has kept the international sugar prices suppressed for four consecutive years which has not only squeezed the margins of the firms but also forced closure of mills and consolidation in the sector. The domestic sugar prices have also remained subdued due to surplus sugar stock and stagnant consumption pattern.
Going forward, an early resolution for the current faceoff between the millers and the UP state government, devising a mechanism for ensuring that the advances disbursed for cane payment reaches the farmers without delay and cane pricing linkage shall be the key for resurrecting the confidence in the sector, a Care Ratings report said.
"The state government, for the first time, has recognized that the paying capacity of UP sugar mills has worsened," said Abinash Verma, Director General of the Indian Sugar Mills Association (ISMA).
Considering the precarious situation of the farmers who were left at the mercy of millers for payment of their dues, Allahabad High Court on a petition filed by Rashtriya Kisan Mazdoor Sangathan mandated all the sugar mills in the state to clear their cane dues by October 31. As a result of these steps, the cane arrears have gradually come down to Rs 2800 crore as on October 14.