Sugar glut impacts UP khandsari units

High sugarcane prices together with lower khandsari price, has dealt a severe blow to the khandsari industry in Uttar Pradesh.

Between the sugar years 2005-06 and 2006-07 (October-September) when the number of sugar mills in the state increased from 131 to 149, the number of khandsari units went down from 468 to 366.

In percentage terms, 21.8 per cent of the units shut down in these two years, which is the highest between the two seasons.

The state government had increased the state advised price (SAP) of sugarcane from Rs 115-Rs 120 a quintal in 2005-06, to Rs 125-Rs 130 in 2006-07.

High sugar production of about 28 million tonnes in the current year, against the 19.2 million tonnes produced last year, has impacted prices of both sugar and khandsari. Sugar prices went down from Rs 1,800 to Rs 1,300 a quintal in the past year, and khandsari prices came down from Rs 1,700 to Rs 1,200 a quintal.

"While sugar mills were able to run for the whole season because of better cash flows and diversification, we were unable to survive the entire season as our losses were mounting,'' said Bal Krishnan, a khandsari unit owner in Brijnathpur village of Ghaziabad district. ''Our khandsari sells at Rs 100 a quintal cheaper than sugar, but it has to compete with sugar."

A medium-size khandsari unit with a crushing capacity of 1,700 quintals a day directly employs about 60 people. The recovery rate averages of khandsari units is 4 per cent-4.5 per cent, against 10 per cent in sugar mills. The units also have to pay a cane purchase tax of Rs 1.50 per quintal.

"The khandsari business is not profitable anymore. While their production cost is higher than sugar mills, they have to buy sugarcane at a similar price. Moreover, khandsari sells at a price lower than sugar," said Arun Khandelwal, member of Gur, Khandari and Grain Merchants Association, Muzaffarnagar.