New Delhi: Sugar mills in India’s second-largest producing state have been idle since early October, when the new crushing season should have begun, as prices are now lower than those they have to pay farmers for cane, traders said.
“Crushing cane will result in cash loss,” Nikhil Sawhney, corporate vice-president of Triveni Engineering and Industries Ltd, a leading sugar producer said.
“It would be foolish to start crushing cane in Uttar Pradesh.” The government of the northern state, which accounts for around 40% of India’s sugar output, recently said mills must continue to pay farmers at least Rs1,300 per tonne for cane, while firms had been looking for a reduction.
Mills say current sugar prices are around 1.5-2% below what they have been told to pay farmers.
“Sugar prices will fall further as crushing gathers momentum and more sugar is available in markets,” Sawhney said. “Cane prices announced by the Uttar Pradesh government are totally irrational.” India is likely to produce a record 30-32 million tonnes of sugar, up from 28.4 million tonnes this season. The country consumes around 20 million tonnes annually.
Mills, saddled with huge stocks, have been scouting for buyers in international markets but a global slump has made that difficult. Now a large number of mills have decided to move their surplus sugar at zero profit.
Trade officials say India is likely to export 3.5 million tonnes of sugar in the year to September 2008, against 1.7 million tonnes last year. “We do not know what is the way out in Uttar Pradesh. Perhaps India can take a cue from Thailand, which paid a large amount to its sugarcane farmers,” said Shanti Lal Jain, director general of Indian Sugar Mills Association, the leading private trade body.
“The very order to pay farmers Rs1,300 per tonne, which was aimed at helping them, has now become harmful as a large stock of cane has been lying unutilised,” Jain said. According to a trade estimate, farmers in Uttar Pradesh produced around 900,000 tonnes of cane last year.
Traders say mills owe sugarcane farmers Rs14.12 billion for cane supplied during the last crushing season.