Sugar mills in Uttar Pradesh, the second largest producing state, have accrued an overall loss of Rs 220 crore due to a widening difference between cost of production and the prevailing ex-factory selling price.
"The ex-factory sugar price today is Rs 30.5 a kg against a cost of production of Rs 33 a kg with the revised State Advised Price (SAP)," said Abinash Verma, secretary-general of the Indian Sugar Mills Association.
Total output by mills in UP have been reported at 850,000 tonnes so far, after crushing 10.3 mt of early-variety cane. Average recovery this season (of sugar, from cane) has been 8.2 per cent.
Citing a substantial rise in the SAP as the only reason for the loss, Verma said, "The financial health of sugar mills in the state is deteriorating with each piece of cane they crush. Some policy intervention is required."
The loss was aggravated by a 10 per cent mandatory levy quota on each mill at Rs 18 a kg, nearly half the production cost (levy sugar goes to supply ration shops, and the government fixes price and quantity).
This year, the UP government raised its SAP nearly 20 per cent, by Rs 35 a quintal to Rs 240 a qtl for the normal variety, which accounts for 60 per cent of total cane production. The early and rejected varieties account for about 20 per cent of production each. The rejected variety would now sell for Rs 235 a qtl, a rise of Rs 35 from the previous year, while the early variety will cost Rs 240 a qtl this year, a rise of Rs 40.
"With the massive hike in cane prices and general increase in other inputs, our cost of production in UP in 2011-12 is estimated to be Rs 33-34 a kg, while that in Maharashtra is expected at Rs 29-30 a kg. Hence, ex-mill prices should be allowed by the government to stabilise at these levels. Anything less would mean losses to mills and cane price arrears by January 2012 itself," said Verma.
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UP has already registered a significant jump in sugar production at 530,000 tonnes till November 30 this year against 183,000 tonnes in the corresponding month last year. An industry official said, "If sugar mills are forced to crush cane at the current SAP, their working capital will erode gradually and run down just in two months. Farmers' arrears would start piling up to reach a new record this year."
Meanwhile, the case filed by UP-based mills against the SAP has been adjourned by the hight court to Tuesday.