The Hindu Business Line : Sugar millers upset over hike in cane SMP

THE sugar industry is `shocked' by the Centre's decision to hike the Statutory Minimum Price (SMP) of sugarcane to Rs 730 a tonne for the 2003-04 season.

According to sugar millers, by hiking the price of raw material (sugarcane) at a time when the price of the product (sugar), rules low, the Government is forcing the cash-strapped industry deeper into financial problems. "We are likely to a see a spate of petitions in the courts in every State in the next two or three weeks."

The Government will have to consider coming out with a relief package to pay the farmers the higher price fixed for sugarcane. The Indian Sugar Mills Association and the other regional associations are to meet over the next few days to discuss the options, one of which is shutting down the mills, they say.

Despite being a drought year, sugar production in October 2002-Setpember 03 crop year was around 200 lakh tonnes, an additional 15-lakh tonnes over the previous year.

The decision to peg cane price at Rs 730 a tonne is unviable considering that sugar prices are ruling at Rs 11.50 a kg. Sugar mills last year were unable to pay the farmers the SMP of Rs 695 a tonne, when sugar price had ruled around Rs 12.80 a kg.

Official estimates indicate that the mills owe the farmers nearly Rs 1,250 crore.

This season's price adds at least Rs 80 to the cost of production of a 100 kg bag of sugar. Ideally, the sugar price should rule around Rs 14 a kg. The sugar production costs could be even higher this season because sugarcane production is expected to drop by about 25 lakh tonnes as compared to last year. There is no way that prices are going to look up considering that the mills are carrying a stock that is estimated to range around 100 lakh tonnes.

A miller said the price fixed for sugarcane "does not appear to be sound or based on valid consideration". With the minimum price fixed for a sugar recovery of 8.5 per cent to a tonne of sugarcane, the industry will actually have to pay much more as the recoveries range around 10 per cent.

For instance, in Tamil Nadu, the average price of a tonne of sugarcane ranges around Rs 870, with some mills paying over Rs 1,000. Mills across the country are facing an additional sugarcane price of about Rs 2,000 crore, according to estimates by the Indian Sugar Mills Association.

The only way that the farmers are likely to receive payments of this order is if the Government decides to make a grant or loan of the additional price over that announced last season. Last year it announced a relief package of about Rs 2,500 crore to clear the arrears but this year the figure would be higher, the millers say.

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