A standoff between the sugar industry and the Uttar Pradesh government over cane prices could lead to an economic crisis for sugarcane growers in the state.
Private mills have not yet started preparatory work to begin cane crushing operations in Uttar Pradesh for the new sugar season that started October 1, as they want clarity on prices before starting their factories. These mills buy more than 90 per cent of the cane that goes into making sugar in the country's second-largest producer of the sweetener after Maharashtra.
Sugar mills in Uttar Pradesh purchased cane worth Rs 22,000 crore from farmers last year at Rs 280 a quintal. However, with sugar prices remaining depressed, the mills have yet to pay Rs 2,350 crore to cane farmers.
An executive at a sugar mill, who does not want to be named, says companies have told the state government they can pay Rs 230 per quintal for cane to farmers. "There is no way we can pay a higher price," the executive says.
The mills have also assured the government that if they realize more than Rs 3,000 per quintal on sugar, they will share 75 per cent of that realization with farmers. Currently, mills are realizing Rs 2,900 for every quintal of sugar.
Uttar Pradesh has 122 mills with Bajaj Hindusthan, Balrampur Chini and Triveni Engineering among the top sugar companies. Livelihood of about seven million farmers in the state depends on sugarcane.
Mills will likely face difficulties in making payments to farmers this season as well. The huge sugarcane payment is a trigger for sales of automobiles, tractors, consumer goods, consumer durables, cement and steel in the state, and problems in the sugarcane economy will impact these sectors indirectly.
As majority of cane growers are Hindus, the crushing season begins after the Ganga Snan (Bath) every year. This year the Snan falls on November 17. But it is unlikely mills will start crushing before the end of November.
"It takes over 10 days to get the boiler ready before a mill can start crushing sugarcane. So, mills will not start buying cane before the end of this month," says an industry observer, who does not want to be named. Most mills, it is learnt, are sitting on large sugar inventory and are in no hurry to start crushing.
The state government is in a fix. With general elections scheduled to be held by May, the state government is under political compulsion to announce a higher sugarcane price. But the sugar industry is not even willing to pay the price it had agreed to last year. A way out is the grant of direct subsidy to mills, but this does not seem feasible given the strained condition of state finances.