Top sugar industry executives met Uttar Pradesh chief minister Akhilesh Yadav on Tuesday and urged him to link the price of cane with that of sugar and other by-products to tide over a crisis precipitated by banks' refusal to extend loans to mills due to high cane prices.

According to sources, the executives requested Yadav and senior government officials to fix the cane rate at 70% of the prices of sugar and other by-products, or 75% of only sugar price, as suggested by the Rangarajan panel last year. The state is yet to announce the cane price for the 2013-14 season that started on October 1.

The state's sugar industry is facing an unprecedented situation this year as banks have refused to offer working capital loans to even leading companies, blaming high cane prices fixed by the state government for the mills' continued losses. This means that in the absence of funds, cash-starved mills won't be able to crush sugarcane this year unless the government announces a reasonable linkage between cane prices and sugar prices or declares a significant cut in the raw material price from R280 per quintal last year.

Crushing of cane is as much crucial for the survival of the industry as for the government, especially in view of the 2014 Lok Sabha elections. This is because any failure to pay cane prices in time by mills can potentially swing the prospects of the ruling party.

Importantly, at R2,800, or roughly $46 a tonne, the cane price in Uttar Pradesh is the highest in the world, way above $28 in Brazil and $27 each in Thailand and Australia. On the other hand, its recovery rate of 9.2% is among the lowest in the world — less than 13.5% in Brazil, 10% in Thailand and 12.5% in Australia.

Consequently, mills in the state incurred losses of R3,000 crore in the last marketing year and around R1,000 crore in the year before, acording to an Indian Sugar Mills Association (ISMA) estimate.

Mills in the state usually start crushing around Diwali and, this year, the activity is all set to get delayed as the state government is far from announcing the cane price. Last month, in a rare move, sugar mills in the state asked the government to declare cane price first before they place their requirements.

Thanks to high prices, the state accounted for 75.3% of the country's total cane arrears of R4,424 crore until July 31 while Maharashtra had almost zero arrears.

Although arrears have somewhat eased since July, the battered finances of mills in the state due to a 10-15% drop in sugar prices over the past 6-7 months have significantly eroded their ability to pay farmers for raw material purchases. A third straight year of surplus output, ample stocks and around 7,00,000 tonne of sugar imports in the last marketing year through September have dragged down wholesale prices of the sweetener while state-fixed cane prices were raised by up to 17% last year.

Adding to their worries, the prospect of a fourth straight year of surplus output in 2013-14, following good monsoon showers, indicates domestic prices may remain subdued in the coming months as well if imports continue unabated. "Sugar stocks as of October 1 were to the tune of 8.85 million tonne, and with a good output forecast for this year, stocks will continue to pile up and may hit a record 10 million tonne by April 2014," said Ajit Shriram, deputy managing director, DCM Shriram Consolidated.