The sugar industry in Uttar Pradesh was never alien to crises, but this year it is staring at a disaster. Starved of cash and directed by the Allahabad High Court to clear cane arrears of R3,760 crore by mid-August, mills are struggling to recover R879 crore from the state-run Uttar Pradesh Power Corporation (UPPCL) for the supply of electricity they produce from cane by-products to stay afloat. But hopes seem to be fading.
Significantly, the mills have paid farmers as much as R18,700 crore so far this year for cane purchases, which is R2,497 crore, or 15.4%, more than that in the same period last year and a whopping R500 crore more than the payment during the entire marketing year through September 2012, said Abinash Verma, director-general of the Indian Sugar Mills Association. This is despite the fact that cane prices have been raised by the state by 17% for the 2012-13 marketing year while sugar prices are ruling just 3-4% higher than the levels seen a year ago.
So, while sugar at the factory gate in Uttar Pradesh is fetching an average of R31,500 per tonne, the cost of production stands at R35,000. Coupled with the proceeds from sales of other cane by-products ? including ethanol and molasses ? the industry will still lose at least R1,500 crore a year, factoring in a production of 7.5 million tonne, said executives at two big sugar mills in the state. That?s a lot of money for an industry that makes up roughly a fourth of the country’s R80,000-crore sugar sector.
With sugar prices failing to keep pace with the rise in cane rates, the industry has been pinning hopes on by-product sales to avoid a disaster, but in vain. The UP government hasn’t committed any time-frame for the payment of R879 crore that UPPCL owes to the sugar industry. Moreover, the state government’s policy of keeping a portion of the molasses reserved for the liquor industry has dragged mills’ realisations from this by-product as buyers get into bargain hunting on prices while oil-marketing companies have not yet lifted the desired quantity of ethanol they are supposed to, senior industry executives said. These have made compliance with the court order for clearing cane arrears by August 15, a daunting task.
Moreover, the price of cane in the state is roughly 20% higher than that in central Maharashtra while its recovery rate of 9.19% trails Maharashtra’s 11.41%. This is the reason why Maharashtra produced about 7.97 million tonne of sugar by crushing 69.9 million tonne of sugarcane this year while output in Uttar Pradesh trailed at 7.43 million tonne despite the crushing of 80.80 million tonne of cane. Cane price accounts for 65-70% of the cost of producing sugar.
Not surprisingly, mills in Uttar Pradesh face the most hurdles in paying farmers in time. Of the R8,225.53 crore of cane arrears in the country as of June 1, Uttar Pradesh alone accounted for R5,490.63 crore, or 67%, although these have now come down to around R3,760 crore. The latest data for other states are being compiled.
Compounding mills? worries, the working capital loans taken by them were hypothecated at around 85% when sugar prices were higher. With ex-factory prices having dropped 10-15% over the past 6-7 months, this has started pinching them more.
