Sugar mills in India's second-largest sugar-producing state have told regulators that they will halt operations if government-set prices for sugar cane aren't lowered.
The mill owners in Uttar Pradesh in northern India complain that with relatively low prices for refined sugar and the high cost of purchasing cane, they would lose money if they keep producing.
Refined sugar prices, largely set by market forces, have risen by nearly 7% over the past four years. But cane prices, set by state governments at levels favorable to farmers, have risen tenfold over the same period, according to sugar-industry trade groups.
Uttar Pradesh's state government has set the highest price — 280 rupees for 100 kilograms--for cane purchases of any Indian state. The average cane price across all Indian states is 180 rupees per 100 kilograms.
As a result "mills have defaulted in bank repayments and in paying cane prices to farmers." Deepak Guptara, secretary of the Uttar Pradesh Sugar Mills Association, said.
Mr. Guptara said mills are recording losses of about 5.5 rupees, or 9 cents, on each kilogram of sugar they sell.
At a news conference in New Delhi on Tuesday, Mr. Guptara said cane prices need to be linked to sugar prices.
Disputes over cane prices flare up regularly at this time of year, before mills begin crushing, or squeezing the sugar out of the season's cane crop--a process that usually begins in October.
Last year, the mill owners in Uttar Pradesh refused to accept sugar cane, demanding lower prices. The dispute was resolved after the state allowed mills to pay farmers in two tranches and waived some taxes.
The states Maharashtra and Karnataka now link cane prices to sugar-mill profits.
Uttar Pradesh "has to rationalize cane prices, or we will be forced not to begin crushing of cane this year," said C.B. Patodia, president of the Uttar Pradesh Sugar Mills Association.
The Uttar Pradesh sugar industry has lost 40 billion rupees during last two years, according to the state's mill owners, the trade group said.
Rakesh Tikait, leader of the Bharatiya Kisan Union, which represents hundreds of thousands of farmers across India, said "the faulty policies" of the Uttar Pradesh government had left the farmers in the middle of a financial mess.
Officials in the Uttar Pradesh government weren't available immediately to respond.
Sugar mills haven't paid Uttar Pradesh farmers for all the cane they have bought. "Their last year's arrears stand at over 25 billion rupees," Mr. Tikait told The Wall Street Journal Tuesday.
Uttar Pradesh accounts for a third of the country's total production. About 4 million farmers in the state depend on sugar cane for their livelihood.