INDIA: Speculation abounds over direction UP will take on cane prices

Published: 10/12/2017, 12:12:09 PM

Even as the sugar season 2017/18 is set to begin, the industry in Uttar Pradesh is rife with speculation on what the state government may fix as the state advised price for cane this year. While farmers are hoping that the price is increased substantially to cover their input costs, the industry is hoping that the increase is as minimal as possible so as to not burden the industry with fresh cane dues in the coming season, according to India's Financial Express newspaper.

According to sources, the cane department is mooting the proposal of increasing the cane price by at least INR10 (US$0.15)-INR15 per quintal. It is also toying with the idea of linking sugar recovery with this year's SAP, which is yet to be announced, in order to incentivise cane farming.

The idea of recovery linked cane pricing is to make the state's average recovery of last year as the base recovery and in case of higher recovery, mills would be asked to pay a premium on it.

However, while the exact premium is yet to be decided, the idea is already fraught with complications. While on the one hand, some of the more efficient mills in the state will have to shell out higher cane price, thus acting as a disincentive, other mills which would have lower recoveries will get away with being inefficient. Further, this may add more confusion, as it will lead to variable pricing not only in every district, but also multiple pricing in the same district as well.

Talking to FE on condition of anonymity, a sugar miller having substantial presence in the state said that this will be a deathbell for the industry in the state, which is doing well at present.

"Those mills which have put in a lot of money in setting up modern plants which are more efficient, will, in a way be penalised for having better recoveries while their counterparts, who have not invested as much, may get away with lower recoveries. We have invested a lot in logistics and have actually done a lot of work in cutting down on the cut-to-crush timing, due to which we have reported better recoveries," he said, adding that by doing so the state government may actually force the better players to under-report their recoveries.

Urging the state government not to increase sugarcane prices and not to link the recovery with the cane price, as it would hit them hard, the millers are of the view that instead of all this, the government should ensure that the prices are right so that the millers can pay up on time and cane arrears do not pile up.

It may be mentioned that UP is likely to register a record sugar output of around 10 million tonnes in the forthcoming season starting later this month.

"Once the sugarcane prices are increased, they cannot be reduced even when the sugar prices fall. In such situations, when the sugar prices are depressed, cane price arrears accumulate and sugar mills incur losses," the miller said.

On being asked about the proposal to link recovery to cane price, state cane minister, Suresh Rana, however, said that though this proposal is being mooted by the department, the government is not too keen on it at present. "We are aware that this may lead to more complications and also lead to piling up of care arrears. We will not do anything which would go against the interests of either the farmers or industry. The relation between the farmers and the industry is mutual and one cannot exist without the other. As a result, we have to look at protecting both," he said, adding that if the mills do not run properly, the worst sufferers would be the farmers.

"Similarly, if farmers get disenchanted over non payment of cane dues on time, they would move away to other crops, thereby hampering the working of the mills. The government would therefore not do anything that will hamper the interests of either," he stated.