Uttar Pradesh, home to country’s leading sugar companies like Bajaj Hindusthan and Balrampur Chini, is all set to announce a big hike in sugarcane price for farmers this year after a gap of four years as the state prepares to go to assembly elections in 2017. Sugar mills in the state have prepared themselves to pay as high as Rs 320 a quintal to purchase sugarcane this season (October-September), an industry official said, adding anything less than that will be a bonus for them. The state advised price (SAP) of sugarcane has continued at Rs 280 a quintal since 2012-13. Pricing of sugarcane is governed by the statutory provisions of the Sugarcane (Control) Order 1966, issued under the Essential Commodities Act (ECA), 1955. It is binding on mills to buy sugarcane at the price fixed by the government. While the fair and remunerative price (FRP) is fixed by the Centre, every state declares their own SAP. “There will be definitely an increase. But it will be decided later,” said Sudhir Panwar, a member of UP’s planning commission. He said there should be a reasonable increase keeping in mind the cost of production in the state, which is about Rs 260 a quintal. The Centre has already declared the FRP for 2016-17 season at Rs 230 a quintal. However, the commission for agricultural costs and prices (CACP) has suggested it should be hiked to Rs 255 a quintal for the next season, sources said. Higher cane price may reduce the profit margin of mills in UP, as sugar prices have been rising ever since reports come suggesting lower production than demand for this year. The Indian Sugar Mills Association (ISMA) has pegged the output at 23.37 million tonnes for 2016-17 season, down from 25.1 million tonnes a year earlier. Traders and analysts put the estimate even further lower at 22.5 million tonnes for this year. According to the credit rating agency ICRA, sugar prices have increased from around Rs 31,500 per tonne in March to Rs 36,000 a tonne in August and September. When sugar prices were low for the last two years, mills in UP had convinced the state government not to increase the SAP. Last year, they even threatened not to crush the sugarcane, which ultimately led to the government deciding against raising the price. Higher SAP than FRP led to year-on-year rise in cane price arrears, Tarun Sawhney, president, ISMA, said. The association has recommended that the government remove the system of SAP and in case states announce it, the price differential between FRP and SAP should be borne by state governments. UP had last year announced a formula under which mills were to pay Rs 240 per quintal of cane purchased from farmers while the state government was to share the remaining Rs 40 a quintal under a plan. The CACP last year recommended that under the revenue sharing formula (RSF), total revenue generated from the cane-sugar value chain, which is the value of sugar and its first stage by-products, be shared between the farmers and the millers in the ratio of their relative costs in producing cane at farm level and converting that cane into sugar and its by-products at the factory level. Uttar Pradesh, India’s largest producer of sugarcane as well as sugar, defaulted in paying about Rs 21,000 crore to farmers in April last year that prompted the Centre to announce a host of measures for enabling them to clear the arrear. In UP, the sugar belt in the western region influences the politics of the state and parties compete with each other to champion issues related to the farmers. The Centre has asked states not to fix higher price for sugarcane than the one fixed by it. Already Maharashtra and Karnataka have made laws on sugarcane pricing based on the recommendation of the Rangarajan committee.