Good crop, but cane prices may hike sugar cost

Good crop, but cane prices may hike sugar cost
Pankaj Shah, TNN | Sep 20, 2013

LUCKNOW: Festive season is round the corner and sugar mills have dropped broad hints of inability to operate this season because of high cane prices, in what may lead to a gap between the demand and supply, hence escalated prices of sugar this festive season. In fact, commission for Agricultural Costs and Prices (CACP) has expressed strong apprehensions pertaining to the sugar industry in UP. In its latest report, the commission has hinted that sugar production may go down dramatically because of large cane arrears, affecting the cost of sugar nationally to some extent.

The observation of CACP comes at a time when state sugar mills gear up for crushing next month with total cane arrears to the tune of over Rs 2,500 crore staring at them. Industry watchers said if supply drops and demand keeps up pace there would be escalation in sugar prices, essentially during the peak of the festive season beginning next month.

According to the report, the lack of alignment between the cost of raw material (sugarcane) and the recovered price of the processing product (sugar) has led to record cane arrears in 2012-13. The cane price arrears for the 2012-13 season touched a record RS 11,990 crore by April 15, amounting to 21.2% of the total cane dues.

The commission drew a parallel with the situation prevailing in 2007-08 when the arrears (22.9%) led to a sharp fall in cane production. The same situation, the commission observed, has come to prevail this season as well and alerted of an impending downward cycle in the sugar sector. The CACP noted further that the prices announced by UP government (Rs 280 per quintal) does not reflect any rational link either with the cost of sugarcane production to the value of the sugar and its byproducts. The commission supported clearly the claim of sugar mills owners that the statuary advisory price (SAP) in UP is on the higher side compared to what sugar factories can afford, given the prices of sugar.

Director general of Indian Sugar Mills Association, Abinash Verma said the state was heading for a Bihar like situation which witnessed a large number of closure of sugar mills in the recent past. "There has to be a rational pricing policy at play for the industry to sustain itself," he said, while speaking to TOI.

The UP Sugar Mills Association (UPSMA) clearly said they were not in a position to run the mills at this rate. Director of Balrampur sugar mills, Vivek Sarogi, said there is a limit to the paying capacity. "In the present scenario our paying capacity is only to the tune of around Rs 240 per quintal. The industry is in dire need of help from the state government and we hope it would come forward to rescue," he said. The UPSMA has also been demanding subsidy from the state government to pay their arrears. "The government can pay it directly to the farmers or can route through us. That can be done at least for a year to allow the situation to improve later in the year as crushing begins," said Sarogi.

The UPSMA members insisted the prices of sugar are witnessing a dip this season. "There has been a good crop in Maharashtra and Karnataka. State's stock is already full. There is an additional stock of at least around 20 million tonnes that will help lower prices of sugar in the festive season," a member said.

According to the CACP report, UP government increased prices of cane by around 19.3% in the last three seasons (1010-11 to 2012-13) while the prices of sugar increased by only 2.6% during the same period. The disconnect between the two prices has led to the precarious financial position of sugar mills leading to accumulation of cane arrears. The sector, in turn, will become unsustainable in the long run and lead to financial sickness. "Ultimately, this would lead to demise of the sugar industry as has happened in Bihar," the report said.

President of Kisan Jagriti Manch, Prof Sudhir Panwar said that it is the question of input cost incurred by the farmer which is more important. "Sugar industry has been getting some sops from the state government in the past. Now it is time for the government to pay attention to farmers," he said, adding "in any industry the price of final product is determined on the basis of the raw material but the sugar industry is advocating for the opposite. They want to transfer business risk and profit to the farmers."

A Crushing Crisis

* The sugar mills have not spelled out their cane requirement past the due date of September 6 in what may delay the cane crushing season and force farmers to resort to distress selling.

* There was a possibility of cane growers either burning sugarcane or selling it off at a price much lower than the state advisory price (SAP) of Rs 280 per quintal. Process of fixing new SAP for 2013-14 too has yet to begin.

* UP Sugar Mills Association has been seeking state government's help to link sugar prices with the cane price to make payment easier.

* Banks had refused to provide loans for the working capital. That affects the industry functioning. The mills, which have yet to pay over Rs 2,500 crore to farmers for cane purchase during 2012-13 are constrained by banks' reluctance to extend additional loans.

* 100-odd private sugar mills have told the state government that they would rather know the cane price for the season before submitting their cane requirement for the year.

* The industries are reported to have told the state government that for the new season, they can at best pay 14% less than last year's government-fixed price of Rs 280 per quintal. This comes to around Rs 240 per quintal.





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