Defiant UP mills want price set before fixing cane area

Written by Deepa Jainani | Lucknow | Updated: Sep 7 2013, 08:25am hrs
In a bold move, 100-odd cash-starved private sugar mills in Uttar Pradesh have invoked a state law and told the state government that they would rather know the cane price for the season starting October before submitting their cane requirement for the year. The mills, which are yet to pay R3,243 crore to farmers for cane purchases during 2012-13 and constrained by banks reluctance to extend any additional loans to them, have told the government that for the new season, they can at best pay 14% less than last years government-fixed price of R280 per quintal.

In July, the Allahabad High Court asked the mills to pay farmers for their cane purchases within six weeks.

In a letter to the state cane commissioner, the UP Sugar Mills Association said: In the event of fixation of a higher cane price which the mills wont be able to pay, they will not be liable to crush the entire cane as per the reservation order because the responsibility to run the mill and crush the entire cane does not include any undertaking to incur losses, which are clearly predictable in the event of a higher cane price.

The mills have pointed out that as per Sections 15 & 16 of the UP Sugarcane (Regulation of Supply and Purchase) Act, 1953, the cane commissioner is to reserve or assign the area of sugarcane to the sugar industry after having the consultation with the factory/ industryand as per the provisions of Section 17 of the Act, the industry is to make the provision for payment of the price of cane purchased by the industry.

Earlier, the state government had written to the mills saying that if they do not submit their cane requirement by September 6, the department will assume that they have nothing to say and fix the cane areas suo motu. The industrys sharp riposte to the fiat is in the context of mounting losses, exacerbated by cane prices being fixed at a high R280 per quintal for 2012-13 when sugar prices ruled at R3,000 per quintal. The industry repeated its constant complaint that at this high price, their cost of production exceeded R3,600 per quintal, resulting in a collective loss of over R3,000 crore for 2012-13 alone.

To tide over the crisis, the industry asked for either a cash subsidy from the government or help to get interest-free loans. In the process of asking of the reservation/assignment proposal, the price is an important element, which is not known to the industry, the association said.

It must be appreciated that the industry cannot be forced to purchase the cane or to accept the reserved/assigned area, if the running of the sugar industry is not viable. There is no provision in the law that the industry should suffer the losses," said a miller, on condition of anonymity.

The normal practice is that the government earmarks the cane area from where the mill has to procure the cane for each mill after factoring in details of requirements submitted. Usually the state government fixes the cane price after the reserved areas are finalised.

In recent years, hefty hikes in cane prices and low crop recoveries have been bleeding sugar mills in Uttar Pradesh compared with states like Maharashtra and Karnataka. Cane prices in UP are already among the countrys highest and the mills have been seeking a rationalisation of cane pricing as a necessary step to revive the industry.

According to industry analysts, Uttar Pradesh very often uses cane price as a political tool to woo vote bases in its farming community. This has gone a long way in making the industry unviable. "The only way out of this is that Uttar Pradesh rationalises its cane price and aligns it with the value of sugar and its first-stage by-products. Only then will it benefit both the industry as well as the farmers in long run," said one of them.

In fact, the Rangarajan panel had suggested linking cane price to that of its by-products and recommended that 70% of ex-mill prices of sugar and each of its three major by-products bagasse, molasses and press mud be paid to farmers for cane supplies. The committee also said that the benchmark price fixed by the Centre also called the fair and remunerative price be the minimum price for cane purchases.

Cane price fixed by UP (state-advised price or SAP) is the highest in the country, roughly 20% higher than in central Maharashtra, while its recovery rate is among the lowest at around 9% compared with 11% in Maharashtra. The recovery rate refers to the percentage of sugar production out of the crushing of a quintal of cane. Cane price accounts for around 65-70% of the cost of producing sugar.