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Faced with mounting losses and piling farmer arrears, sugar mills in Uttar Pradesh, India’s second largest producer, are considering surrendering the cane area allocated to them.
According to sources, around six sugar mills have already written to the state agriculture department in this regard. “Over half a dozen individual sugar mills have opted out of cane area allocation. Others are likely to follow due to deepening losses,” said a senior industry official.
Unlike other states such as Maharashtra, where harvesting of cane is monitored by sugar mills and farmers are paid at the fair and remunerative price (FRP) announced by the Centre, the government of Uttar Pradesh has allocated 25 km of mill’s radius as reserved cane area. The state government also decides the price of cane known as state advised price (SAP) that mills have to pay to farmers.
According to the prevailing law in the state, sugar mills are required to procure entire cane within the 25 km radius, the area reserved for the mill. Sugar mills cannot deny procurement of even last standing crop or suspend crushing abruptly. Consequently, mills incur losses as the realisation is lower than the cost of production.
Once the area allocation is scrapped, the mills won’t have to buy cane and they would be free to suspend crushing in case of losses.
Mills say this is a correct move. If one mill is unable to run a unit in the vicinity, cane should be supplied to the nearby mill. There should not be any legal liability on mills for cane procurement, they add.
Uttar Pradesh is the only state where cane area allocation currently prevails. After a recent Supreme Court judgment, area allocation in other states have been scrapped.
“Any such request by mills would be illegal during the crushing season. We normally consider cane area allocation issues in October. Apart from that, mills would require to evince closure at least one year in advance as farmers should be given at least one year prior notice so that they can opt for alternative crops,” said S C Sharma, cane commissioner, Uttar Pradesh.
“Once farmers sow cane, mills cannot abruptly shut shops," said S C Sharma, Cane Commissioner, Government of Uttar Pradesh.
Large sugar mills, however, are awaiting revival in overall industry trend and recovery in prices.
“There could be a discussion. But, we have not taken any such move,” said Sanjay Tapriya, chief financial officer of Simbhaoli Sugars.
This means mills are unlikely to get respite in the ensuring crushing season beginning October 2015.
Pressure has been building on mills due to falling sugar prices and elevated cane prices. Trade sources said that sugar mills not only in Uttar Pradesh but also across the country have suffered a massive economic loss since the beginning of crushing in November 2014. Ex-factory sugar realisation has fallen by Rs 6-7 a kg since November to Rs 23-23.5 a kg.
Apart from the need to clear a massive cane arrears of Rs 20,000 crore, mills are also facing problems in raising working capital from banks.
According to sources, around six sugar mills have already written to the state agriculture department in this regard. “Over half a dozen individual sugar mills have opted out of cane area allocation. Others are likely to follow due to deepening losses,” said a senior industry official.
Unlike other states such as Maharashtra, where harvesting of cane is monitored by sugar mills and farmers are paid at the fair and remunerative price (FRP) announced by the Centre, the government of Uttar Pradesh has allocated 25 km of mill’s radius as reserved cane area. The state government also decides the price of cane known as state advised price (SAP) that mills have to pay to farmers.
According to the prevailing law in the state, sugar mills are required to procure entire cane within the 25 km radius, the area reserved for the mill. Sugar mills cannot deny procurement of even last standing crop or suspend crushing abruptly. Consequently, mills incur losses as the realisation is lower than the cost of production.
Once the area allocation is scrapped, the mills won’t have to buy cane and they would be free to suspend crushing in case of losses.
Mills say this is a correct move. If one mill is unable to run a unit in the vicinity, cane should be supplied to the nearby mill. There should not be any legal liability on mills for cane procurement, they add.
Uttar Pradesh is the only state where cane area allocation currently prevails. After a recent Supreme Court judgment, area allocation in other states have been scrapped.
“Any such request by mills would be illegal during the crushing season. We normally consider cane area allocation issues in October. Apart from that, mills would require to evince closure at least one year in advance as farmers should be given at least one year prior notice so that they can opt for alternative crops,” said S C Sharma, cane commissioner, Uttar Pradesh.
“Once farmers sow cane, mills cannot abruptly shut shops," said S C Sharma, Cane Commissioner, Government of Uttar Pradesh.
Large sugar mills, however, are awaiting revival in overall industry trend and recovery in prices.
“There could be a discussion. But, we have not taken any such move,” said Sanjay Tapriya, chief financial officer of Simbhaoli Sugars.
This means mills are unlikely to get respite in the ensuring crushing season beginning October 2015.
Pressure has been building on mills due to falling sugar prices and elevated cane prices. Trade sources said that sugar mills not only in Uttar Pradesh but also across the country have suffered a massive economic loss since the beginning of crushing in November 2014. Ex-factory sugar realisation has fallen by Rs 6-7 a kg since November to Rs 23-23.5 a kg.
Apart from the need to clear a massive cane arrears of Rs 20,000 crore, mills are also facing problems in raising working capital from banks.
