Around 45 sugar mills have begun crushing sugarcane in Uttar Pradesh the second largest sugar producing State, as on Monday.
Of these, 31 are private mills and 14 are cooperatives, according to figures provided by the Indian Sugar Mills Association.
At least 70 mills are expected to start production by December-end, industry sources told BusinessLine.
The figure is significant since just 9-10 mills had begun crushing at this time last year, and private millers had threatened to suspend operations this season that began on October 1, due to unfair State pricing for cane procurement.
“It is better this season. Most mills should begin by January 5,” said an industry official. Of the 119 sugar mills in the State, besides that of the UP State Sugar Corporation Ltd, 95 are private ones, while 23 are cooperatives.
An assurance by the State to provide reimbursement and subsidies for procurement is believed to have provided impetus for the mills to start crushing, albeit a few weeks late.
Low sugar price The official said low sugar prices made profitability and timely payments to farmers a challenge. As of November 28, arrears stood at Rs 1,200 crore and ex-factory prices were at Rs 2,700-2,750/quintal.
“This leaves mills with a gap between production cost and sugar sale price. There will be surplus production this year as well, so unless prices improve and domestic stocks are reduced, we don’t really see a bright future,” he said, adding that the State must adopt the Rangarajan panel’s linkage price formula for cane.
The State Advised Price announced last month was unchanged at Rs 280/quintal at 9.2 per cent recovery for the 2014-15 season.
While Rs 240/quintal is to be paid within the first 14 days of purchase, Rs 40/quintal would be due within three months after crushing.
For the second tranche, the UP Government would pitch in Rs20 through reimbursements like a society commission (Rs 6.60/quintal), purchase tax (Rs 2/quintal) and entry tax (Rs2.80/quintal), along with Rs8.60/quintal, subject to market movements once cane payments are made.
“The State has been more responsive and we’ve said that while it doesn’t make the industry viable, it’s some help,” said Deepak Guptara, Secretary, UP Sugar Mills Association.
Banks apprehensive The issue of mills financing working capital through banks, which lend up to 85 per cent of stock value, is perhaps the most acute.
Traditionally, banks received the first charge on sugar stocks pledged for loans, but the Allahabad High Court ruled that cane dues to farmers should get priority over bank claims.
“Even if Rs240 is to be paid, mills still need to be able to sell sugar at Rs3,000/quintal. As of now, the industry is already down Rs300/quintal, so banks are sceptical of our balance sheets,” the official said.
Export promotion The industry is pinning its hopes on the export subsidy scheme being extended, under which raw sugar of up to 40 lakh tonnes (lt) would receive a Rs3,300/tonne subsidy, reviewed every two months.
The scheme was criticised by Brazil, Australia and Colombia, among others, at the World Trade Organisation for distorting global markets.
“Unless exports rise, we don’t see prices getting better, without which we won’t be able to maintain a healthy balance sheet,” he added.
India exported about 12 lt of raw sugar last season, about 7 lt under the incentive. Food Minister Ram Vilas Paswan had indicated that a decision on that front would be tied to cane arrears being repaid.
Domestic production for 2014-15 is estimated at 250-255 lt, almost 4-4.5 per cent higher than last year.
The current season began with an opening stock of 75 lt.