Sixty-two of the 95 sugar factories in Uttar Pradesh, including those belonging to companies such as Balrampur Chini Mills and Bajaj Hindustan, served ‘suspension notices’ to the State Government on Monday, citing their inability to start crushing operations for the 2014-15 season beginning November in the absence of a rational pricing policy for sugarcane.

They demanded that the State adopt a ‘linkage formula’ in line with the recommendations of the Rangarajan Committee, wherein the cane price is linked to sugar.

The cane price fixed by the State for the current season is ₹280 per quintal, which became a burden for millers as realisations from sugar were below the cost of production.

High production cost

The millers claimed they were losing about ₹5.5 for every kg of sugar produced as the cost of production stood at ₹37 while the ex-factory realisation was around ₹31.5 per kg. The mismatch in production costs and realisations has led to a build-up in cane arrears, estimated to be ₹5,742 crore in UP alone. Total payment dues across the country stood at ₹9,252 crore.

“It is not possible to have a viable industry with high cane costs. We want the UP Government to adopt the linkage formula, as suggested by the Rangarajan Committee, so that we can compete with mills in Maharashtra and Karnataka,” said Ajit S Shriram, President, Indian Sugar Mills Association, and Joint MD, DCM Shriram.

Closure notices issued

On Monday, Balrampur Chini, Bajaj Hindustan, Dhampur Sugars, DCM Shriram and Dwarikesh Sugar informed stock exchanges about the submission of their suspension notices to the UP Chief Secretary, the Cane Commissioner and Principal Secretary (Sugar).

“Many more units will submit closure notices in a day or two,” said Deepak Guptara, Secretary, UP Sugar Mills Association.

Prices of sugar, which recovered from a five-year low in April, have reversed direction again on ample supplies, poor offtake and sluggish overseas demand.

The bearish trend in prices is expected to continue on recovery of the monsoon, forecast of higher output for the 2014-15 season, and high opening stocks.

Output is projected to rise by 4 per cent to 25.3 million tonnes in 2014-15, ahead of annual domestic consumption of around 23 million tonnes.

Sugar stocks at the end of the ongoing 2013-14 season, ending September, are estimated to be around 7.5 million tonnes.

The Centre has called for a meeting on August 14 to resolve this issue.

In January, the erstwhile UPA government had notified a scheme to extend interest-free loans up to ₹6,600 crore to help millers clear the cane arrears. About ₹6,000 crore has been sanctioned under this scheme.

Though the Centre had announced its intent to hike the import duty on sugar to 40 per cent from the current 15 per cent to curb inflow of cheaper sugar, it is yet to notify the same.

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