Govt looking at long-term solution to increase sugar production in UP: Mawana Sugars

Last week, meetings were held between the Uttar Pradesh chief minister and the UP Sugar Mills Association over the deadline to clear arrears. Sugar companies are also seeking de-reservation of molasses as well as forward movement on the cane linkage pricing formula.

In an interview to CNBC-TV18, Sanjay Tapriya, CFO, Simbhaoli Sugars & Siddharth Shriram, Chairman, Mawana Sugars discussed the key takeaways of the meeting.

However, Siddharth Shriram said that the government is looking at long-term solution to increase sugar production in Uttar Pradesh.

Below is the verbatim transcript of the interview.

Latha: Are you getting a sense that there is a time bound end to these arrears payments?

Shriram: The government and the farmers wish to be paid but now they are pretty well assured of being paid because the sugar season has been good but the main thing to understand that there are two basic conflicts going on in the mind of the government. One, how to remunerate the farmers more come what may and second, how to keep the sugar prices low to satisfy the consumers - that's a conflict that cannot be overcome without continuous pain to one side or the other. The fact is it is the consumer who pays everybody else including the company, farmers, workers etc. So if you keep the sugar prices low then we are not sure that we will be able to increase sugarcane prices etc. Therefore, the linkage formula is an absolute vital necessity.

Latha: I wanted to know if chief minister suggested anything immediate in terms of payment of arrears and yet maintaining the health of the company?

Shriram: I think he is very concerned about it. I was not in the meeting nor was Mr Tapriya as far as I am concerned. There were very limited members. We are only hearing snippets of what happened and we are hearing from the government bureaucracy. They are going after people who are habitually late payers.

Sonia: Were you a part of that meeting and what do you think the solution could be. How long do you think it would take for these arrears to get paid and at this point in time what is the current situation as far as the arrear amount is that needs to be paid to the farmers?

Tapriya: I was not in the meeting but let us understand the position. It is not a position which has been of this year; this has been a cumulative situation from last three-four years. UP has been reeling under high cane arrears largely because there has been a price gap between the sugar which has been sold by the UP millers and he cane price which has been paid by the UP millers in the past.

This year the situation has started correcting and it started correcting when the sugar prices have started going up, in fact if you look at the total numbers, the record payments have been made by the UP millers this year, pertaining for this year as well as for the last year because of the situation that has emerged in the last four years, quite a few millers are not having working capital lines from the bankers and in this industry which produces for six months and sugar is supposed to be sold for 12 months or even more  than 12 months most of the time, a working capital is required so that one can monetise the sugar in the stock and pay to the farmer. So the biggest problem today is the millers who are not having the working capital, they have the inventories.

Sugar is supposed to be sold for full year; one cannot sell more sugar than what is required by the market on a single day even if by reducing the price. So sugar need to be sold for monetise purpose, working capital is not there so the farmers payment bound to get delayed on that account but I am seeing positive part of that, out of this year's Rs 24,000 crore almost Rs 20,000 crore has been paid so the arrears have reduced significantly.

However, two years back we were talking about Rs 12,000 crore arrears, last year we have been talking about Rs 8,000 crore. So, net arrears have come down. I always look in this industry; there is always a very high self correcting process in this industry and we are on the track on that process and over a period of time probably by 5-6 months the problem will be by far and it will over almost.

So we have to live with that time and definitely there are specific pains, a specific farmer community will suffer but by the end of the day they will be paid for this year as well as last year and by next year they will be paid the full money. So we recognise the working capital is not there, sugar is in the godown, sugar need to be sold and if anything leftover, any dues for which sugar is not there then the companies today are in a position or in a process of finding the solution because the market is better than what it was.

Also watch accompanying videos wherein Vijay Banka, Wholetime Director and CFO of Dwarikesh Sugar Industries shared his views and outlook on the meeting.