Uttar Pradesh's small sugar mills in a limbo

Cane Commissioner may stop new season's crushing.

A majority of the small- and the medium-size sugar mills in Uttar Pradesh, the second largest sugar producer in the country, may not be able to commence commercial production next season, starting November 2007, because of mounting arrears of sugarcane farmers. Experts believe that the state cane commissioner may stop the mills from crushing fresh cane unless they clear their dues.

The UP government has set a deadline of August 31 for clearing the arrears. But, mills want a sugar policy to be announced first to clarify the incentive schemes, which may help them to get better prices and thus clear arrears. "This is a chicken-and-egg story and one needs to wait and watch, said an executive at a sugar mill.

Sugar mills, comprising 200 cooperatives and corporations, 150 private millers and about a thousand unorganised khandsari producers, owe about Rs 2,800 crore to farmers as arrears. Barring the 20-odd large private sector players, average capacity of the other units works out to between 500-2,000 tonnes crushing per day (tcd) as against the economic viable size of 5,000 tcd.

Surprisingly, cane crushers in the state managed to clear their dues, as the industry sources claim. However, they have not paid the farmers since April. As the crushing season ran very late, up to the first week of June, against the normal season up to the April-end, because of a bumper cane production, the arrears kept growing.

Agreeing with the ongoing plight of the sugar industry, B J Maheshwari, company secretary of Dwarikesh Sugar Industries, said, "The sugar industry is cyclical in nature, where the sentiment changes every four years."

Meanwhile, signs of a consolidation in the sugar industry are visible. The trend indicates that most of the small and the medium players will shut shops because of lower realisation and higher cost of sugar production. Big players will have no problems as they have deep pockets to bear the trend throughout the downward cyclical period, according to an executive of a sugar mill.

Maharashtra leads the sugar production in the country with an estimated 8.5 million tonnes in 2006-07, followed by Uttar Pradesh with 8.3 million tonnes.

According to a sugar analyst, moving neck-and-neck, the two states are expected to produce about 9 million tonnes and 8.5 million tonnes respectively.

According to industry sources, sugar-producing states, including Maharashtra, Tamil Nadu, Karnataka and Bihar, have advantages over Uttar Pradesh because of higher recovery rate ratio of 11.6:9.6 despite the State Advised Price(SAP) of sugarcane remaining higher in UP at Rs 130 a quintal and statutory minimum price in other states including Maharashtra at Rs 82.50 a quintal.

Maheshwari, however, is confident that the UP government will soon announce a bailout package in line with the state governments of Maharashtra, Karnataka, Bihar and Tamil Nadu.

Soon after assuming office, the Mayawati government in UP scrapped the existing sugar policy and announced that a new policy would be unveiled soon. Uncertainty still persists over the policy, an analyst said.

During 2006-07, the state's sugar mills purchased around 80 million tonnes of sugarcane for around Rs 11,000 crore and produced around 83 lakh tonnes of sugar. The UP sugar industry contributed Rs 4,500 crore as taxes to the state exchequer.