Cane arrears pile up, bitter season for UP

Written by Deepa Jainani | Lucknow | Updated: Jun 27 2013, 06:21am hrs
It may be a long way for the next sugar season to begin in UP, but the battered sugar industry is already apprehensive about it. With the last crushing season's cane arrears perched at Rs 4,500 crore, the industry is struggling to make payments, especially after sugar prices hit an all-time low of Rs 3150 to Rs 3200 for every 100 kg.

The current sugarcane pricing policy followed by UP government, fixing of SAP is without any transparent criteria, which is continuously increasing at a very fast pace and has not achieved its objective for the sugar sector. It has made production of sugar unviable in the state and mills have become uncompetitive in relation to other states as well as globally, because of which there has been almost no investment either at the mill level or at the farm level in the last almost one decade or so, said Abinash Verma, director-general of sugar body ISMA.

Many sugar millers in the state have been repeatedly voicing their concerns about the sector's viability and have tried to argue it out with successive state governments. The reasons for successive governments announcing high cane prices are purely political. Elections, and not economics have been the deciding factor to woo the farmers with high cane prices. Raising the floor price of sugarcane by 15%-19%% every year has literally beaten the industry hollow. The situation is so alarming that even banks are now refusing to give us loans. If the arrears continue for long, farmers will turn away from cane farming next year and a perceptible drop in sugarcane production will become visible, said a miller on condition of anonymity.

In fact, so deep seated is the frustration among millers that many have started thinking on the lines of moving out of the state. Dalmia Sugars has already started expanding in Maharashtra and if things do not improve soon, many others in UP will follow suit. And this will not bode well for the farmers either. While the mills do not have the cash liquidity to make payments on time, farmers feel harassed for not getting their dues for months on end and start seeking legal help. This entire process can be averted, said another miller.

Unless cane prices are aligned with the value of sugar and its by-products, it would not bode well for either the industry nor the farmers. When cane prices are higher than what they should be by the value of sugar and its by-products, it leads to high cane arrears, as is the case at present, he said.

Crisil Research has stated that rationalisation of sugarcane pricing is critical for the long-term sustenance of the sector. For sugar season 2013-14, the Centre has announced a 24% hike in the minimum price payable for sugarcane the Fair and Remunerative Price (FRP) whereas as per Crisil Researchs estimates, the increase in sugar prices is likely to be only 8-9%. The financial performance of sugar mills will, therefore, deteriorate. The worst hit will be mills in UP and Tamil Nadu, where the state governments announce a State Advised Price (SAP) for sugarcane that is higher than the FRP.

The worst outcome of the current policy is that it gives no incentive to improve cane varieties which would have given better yields to the farmers or better sugar realization to the industry. It is a result of this policy that one-fourth of the sugarcane in the state is of rejected variety, said Verma.