The Hindu Business Line : UP mills run Rs 1,600-cr arrears on cane purchase

New Delhi May 7 The month-long polling to the Uttar Pradesh Assembly will end on Tuesday. But for the State's sugarcane growers, the problems may only have just about begun.

Payments

As on May 3, mills in UP owe farmers well over Rs 1,600 crore in cane payment arrears during the current 2006-07 crushing season (October-September). According to the Cane Commissioner's Office in Lucknow, factories have so far purchased Rs 10,340.79 crore worth of cane in the season, against which payments of Rs 9,623.08 crore were to be made within 14 days from the date of delivery at the mill-gate.

However, the mills have paid only Rs 8,001.57 crore, which leaves Rs 1,621.51 crore due beyond the stipulated 14-day period. Of the unpaid arrears, almost three-fourths is on account of private mills.

While individual mill-wise data is not available, it is reliably learnt that unlike in the past, there have been cases of default from even factories belonging to some reputed sugar combines.

Complications

The industry attributes the arrears — which have piled up only over the last two months — to the huge dip in sugar realisations and the resultant drying up of cash credit limits from banks. Currently, ex-factory prices in UP are ruling at Rs 1,250-1,300 per quintal.

On the other hand, the State Advised Price (SAP) of cane is Rs 125-130 per quintal. To this if one adds purchase tax, cane society commission and un-recovered transport charges, the total gate-cost of cane comes to Rs 140 per quintal. Complicating the picture further is the drop in sugar recovery: mills have this time had to crush right through the summer, when the sugar-to-cane ratio is barely 8.5-9 per cent against the normal 9.5-10 per cent.

"The effective cost of producing one kg of sugar now (excluding conversion charges and overheads) is around Rs 16, whereas we are realising below Rs 13. So, how do we pay growers? Moreover, falling realisations have reduced our drawing power from banks, as we are entitled to only borrow only up to 85 per cent of the value of stocks," a miller pointed out.

Maharashtra scenario

While in UP mills are obliged to pay the SAP, conditions in Maharashtra are somewhat more flexible. In 2005-06, factories paid as much as Rs 170 per quintal to growers, whereas in the current season, nobody has given more than Rs 90.

"Their cooperative-based system allows factories to pass on profits to farmers in good years and share losses in bad years. We do not have this power to adjust cane prices. Also, they have a cost advantage from higher sugar recovery of 11.5 per cent," the miller added.