 "UP sugar industry strives to stay afloat")
The Uttar Pradesh sugar industry, which produces nearly 30 per cent of the country's annual sugar output, is fighting to stay afloat against strong currents.
Mounting losses and an unviable business environment due to the high price of sugarcane vis-à-vis those of sugar have pushed millers to a corner.
UP's sugar economy is estimated at Rs 30,000 crore, including procurement of cane by mills, unorganised 'khandsari' (unpolished sugar) and gur (jaggery) units, and local sales. During the 2012-13 crushing season, the mills alone had purchased cane worth Rs 22,462 crore, compared to Rs 18,200 crore during 2011-12.
Eight mills are learnt to have decided not to participate in the coming 2013-14 crushing season. The sector is battling the challenges of massive cane payment arrears, flat sugar prices, huge carryover stock in the domestic market, a bleak global sugar price forecast and refusal of banks to extend loans.
Besides, the Lucknow bench of the Allahabad high court is hearing a case pertaining to pending cane arrears for the 2012-13 season, currently Rs 2,650 crore. The matter was heard on Tuesday, with the court expressing displeasure over the non-payment of dues, while posting the matter on Thursday.
The Indian Sugar Mills Association (Isma) has urged an audience with state chief minister Akhilesh Yadav, to apprise him of the "poor state" of the UP industry, owing to the rising cost of production relative to realisation during successive seasons. "We are trying to convince the UP government that the paying capacity of the mills is only about Rs 240 a quintal," Isma director general Abinash Verma told Business Standard.
He said the cost of production for mills in UP came to about Rs 287 a quintal, compared to a realisation of Rs 285 a quintal. Every crushing season, the UP government announces a State Advised Price (SAP) for cane which is much higher than the Fair and Remunerative Price suggested by the Centre. The mills have to compulsorily pay the SAP to farmers for procurement. The industry says the SAP in UP rose from Rs 165 a quintal in 2009-10 to Rs 280 a quintal in 2012-13; the corresponding rise in sugar price had only been from Rs 28 a kg (2009-10) to Rs 31 a kg in 2012-13.
"The mills have been paying more than 100 per cent of their net realisation to growers. Thus far, the mills had been managing the farmers' payments from other sources but now they are not in a position to endure any more losses," said Verma.
The industry has long been demanding that UP adopt a revenue sharing formula to fix the cane price. "Karnataka has already introduced such a model, while the Maharashtra government is readying to bring a similar Act," said Verma. He said these two states, which account for a little over 50 per cent of the country's sugar output, would out-price UP sugar due to their lower cost of production.
The situation is exacerbated by the non-payment of sugar mills' co-generation power dues by UP Power Corporation Ltd, which are roughly Rs 500 crore.
From initial satellite mapping, the state's cane output is pegged at 2.5 million hectares this year, up from 2.475 million hectares last year, due to a good monsoon and farmers' preferring to grow cane for better realisation. During 2012-13, the 121 mills in UP had produced 7.5 million tonnes of the sweetener compared to the previous year's output of under 7 million tonnes.
While domestic sugar prices have kept flat over the months, international sugar prices are projected to be stable for the next 12 months due to bumper production estimates and huge carryover stock.
"Banks have refused to give loans to sugar companies, as our repayment capacity has been seriously impaired due to the operating losses resulting from higher cost of production," said B B Mehta, chief executive officer of Dalmia Bharat Sugar, which owns three units in UP.
Experts have also advocated introducing improved cane varieties, to give higher yield and sugar content. The recovery percentage in UP is much lower compared to Maharashtra, which further dents mills' profitability and margins. "UP is landlocked and transporting sugar to ports and warehouses adds to transportation costs," Mehta underlined.
Mounting losses and an unviable business environment due to the high price of sugarcane vis-à-vis those of sugar have pushed millers to a corner.
UP's sugar economy is estimated at Rs 30,000 crore, including procurement of cane by mills, unorganised 'khandsari' (unpolished sugar) and gur (jaggery) units, and local sales. During the 2012-13 crushing season, the mills alone had purchased cane worth Rs 22,462 crore, compared to Rs 18,200 crore during 2011-12.
Eight mills are learnt to have decided not to participate in the coming 2013-14 crushing season. The sector is battling the challenges of massive cane payment arrears, flat sugar prices, huge carryover stock in the domestic market, a bleak global sugar price forecast and refusal of banks to extend loans.
Besides, the Lucknow bench of the Allahabad high court is hearing a case pertaining to pending cane arrears for the 2012-13 season, currently Rs 2,650 crore. The matter was heard on Tuesday, with the court expressing displeasure over the non-payment of dues, while posting the matter on Thursday.
The Indian Sugar Mills Association (Isma) has urged an audience with state chief minister Akhilesh Yadav, to apprise him of the "poor state" of the UP industry, owing to the rising cost of production relative to realisation during successive seasons. "We are trying to convince the UP government that the paying capacity of the mills is only about Rs 240 a quintal," Isma director general Abinash Verma told Business Standard.
He said the cost of production for mills in UP came to about Rs 287 a quintal, compared to a realisation of Rs 285 a quintal. Every crushing season, the UP government announces a State Advised Price (SAP) for cane which is much higher than the Fair and Remunerative Price suggested by the Centre. The mills have to compulsorily pay the SAP to farmers for procurement. The industry says the SAP in UP rose from Rs 165 a quintal in 2009-10 to Rs 280 a quintal in 2012-13; the corresponding rise in sugar price had only been from Rs 28 a kg (2009-10) to Rs 31 a kg in 2012-13.
"The mills have been paying more than 100 per cent of their net realisation to growers. Thus far, the mills had been managing the farmers' payments from other sources but now they are not in a position to endure any more losses," said Verma.
The industry has long been demanding that UP adopt a revenue sharing formula to fix the cane price. "Karnataka has already introduced such a model, while the Maharashtra government is readying to bring a similar Act," said Verma. He said these two states, which account for a little over 50 per cent of the country's sugar output, would out-price UP sugar due to their lower cost of production.
The situation is exacerbated by the non-payment of sugar mills' co-generation power dues by UP Power Corporation Ltd, which are roughly Rs 500 crore.
From initial satellite mapping, the state's cane output is pegged at 2.5 million hectares this year, up from 2.475 million hectares last year, due to a good monsoon and farmers' preferring to grow cane for better realisation. During 2012-13, the 121 mills in UP had produced 7.5 million tonnes of the sweetener compared to the previous year's output of under 7 million tonnes.
While domestic sugar prices have kept flat over the months, international sugar prices are projected to be stable for the next 12 months due to bumper production estimates and huge carryover stock.
"Banks have refused to give loans to sugar companies, as our repayment capacity has been seriously impaired due to the operating losses resulting from higher cost of production," said B B Mehta, chief executive officer of Dalmia Bharat Sugar, which owns three units in UP.
Experts have also advocated introducing improved cane varieties, to give higher yield and sugar content. The recovery percentage in UP is much lower compared to Maharashtra, which further dents mills' profitability and margins. "UP is landlocked and transporting sugar to ports and warehouses adds to transportation costs," Mehta underlined.