Sugar mills face political volley

After getting rid of the six-month-long pressure from the Union government, which banned sugar exports to check inflation and rising sugar prices, sugar mills in Maharashtra and Uttar Pradesh, two biggest sugar producing states in the country, are faced with a new problem which is largely political in nature.

The Maharashtra government has taken a decision that no sugar mill in the state can stop crushing till the sugarcane stock is exhausted.

Apparently, some mills were planning to stop crushing before early-April, the normal end of the crushing season, in order to cut their losses on account of a glut in sugar production and the resultant lower price realisations.

The country is likely to produce a record 230 lakh tonnes of sugar against a consumption requirement of 185 lakh tonnes. Last season, the total production was 191 lakh tonnes.

"The state cabinet has decided that no mill in the state can stop crushing till any amount of cane is left to be crushed," said Prakash Naiknaware, managing director of the Maharashtra State Co-operative Sugar Federation.

In Uttar Pradesh, the country's biggest sugar producing state, the mills are under severe pressure from the Mulayam Singh Yadav government to ensure timely payment to the farmers. The move is aimed at ensuring farmers' support in the Assembly elections scheduled for April-May.

"The sugar companies in the state are using previous season's cash reserves (that came from better price realisations) to make payments now. But they are bound to face payments crisis towards the end of the crushing season, may be in March. The pressure tactics of state government will work up to a certain point, after which some cane arrears are inevitable," said an executive of a leading UP sugar company.

The Sugarcane Control Order provides for payment of cane prices within a period of 14 days after a farmer delivers the produce. "Currently, mills are, by and large, following this with some aberrations," said an industry watcher.

After a good season last year, sugar mills have seen a dent in their cash flows this year on account of lower sugar prices.

Sugarcane payment is a politically sensitive issue in both these states as millions of farmers are engaged in cane cultivation.