In a break from the past, cane arrears in Uttar Pradesh — the traditional epicentre of payment crises due to exorbitant state-fixed cane prices — fell 23% until March 31 this marketing year from a year earlier, while those in Maharashtra and Karnataka jumped 341% and 9%, respectively, reports Banikinkar Pattanayak in New Delhi. This means mills in UP did relatively better in clearing arrears so far this year despite a liquidity crunch, although they still account for the largest chunk of the dues in the country, while their counterparts in Maharashtra and Karnataka are struggling more than ever (see table).

Cane arrears across the country hit a record R19,244 crore as of March 31 as plentiful supplies following a fifth straight year of surplus production through 2014-15 drove down domestic sugar prices sharply, while a crash in global prices made exports unviable. Cane costs, on the other hand, kept rising. Sugar prices are ruling below costs by up to 35% in these states, and even factoring in the realisations from other cane by-products, mills are incurring huge losses.

The UP government’s state advised price (SAP) in 2014 was 27% higher than the fair and remunerative price (FRP) of Rs 220 per quintal fixed by the Centre, although the state has promised mills incentives worth Rs 20 per quintal. While mills in UP are required to pay the SAP, those in Maharashtra and Karnataka are struggling to pay even the FRP this year.

Maharashtra State Co-Operative Sugar Factories Federation managing director Sanjeev Babar said that while the FRP set by the Centre has been increased by 70% in the past six years, sugar prices in the state have dropped by 24%, making it difficult for the mills to pay even the FRP.

A similar situation persists in Karnataka.

A senior executive at a UP mill says the drop in cane arrears from a year earlier suggests the mills, which have excessively offloaded sugar stocks in the first few months to meet costs in the absence of adequate working capital, will be forced to incur higher losses this year as most of the sales realisation have gone into paying the farmers for cane. UP mills are estimated to have made losses to the tune of Rs 7,250 crore in the three years through 2013-14, with Rs 3,250 crore in the last year alone. However, it also means despite “enormous economic hardship” mills have cared to pay farmers, Babar added.