UP Sugar industry..the crisis continues: CARE Ratings

CARE Ratings' report on UP Sugar Industry

The state of Uttar Pradesh (UP), despite being the second-largest sugar producer in the country has earned a dubious distinction of becoming a quagmire for the sugarcane farmers and sugar mills of the state and their inability to extricate themselves from the continuous crisis which has been plaguing the sector for the past few years. The UP sugar industry has been reeling under high sugarcane prices and low sugar sale realizations leading to recurring losses to mills and mounting cane arrears.

Regulatory issues leading to a crisisSugar industry remains highly regulated with significant government intervention due to various factors including its importance in the wholesale price index (being an essential commodity) and with regard to safeguarding the interests of farmers (with over 50 million farmers and their families depend on cane farming for livelihood). The government fixes the raw material (sugarcane) prices in the form of state advised prices (SAP) and fair & remunerative prices (FRP), and as seen in the chart below, historically, the cane prices have been, year after year, amongst the highest in UP as compared with other major sugar The sugar prices, on the other hand, have remained subdued and lower than the cost of production in case of many sugar mills culminating into huge operational losses. The contentious issue of aligning the cane price with sugar prices has largely been unaddressed despite widespread protests by the millers last year leading to a delay in crushing activities for sugar season 2013-14. There was a temporary relief for mills during the last sugar season following partial decontrol of sugar sector and allowance of sops (comprising waiver with respect to entry tax, purchase tax and society commission of Rs.11.03 per quintal for cane purchase making effective cane price of Rs.269 per quintal). There was a further relief assured in terms of additional benefit of Rs.8.97 per quintal to resolve the stalemate between sugar mills and the government during last sugar season (thus making the total waiver amount of around Rs.20 per quintal) and rationalization of cane pricing policy during the ensuing sugar season, ie, 2014-15. However, the dipping trend of sugar prices during major part of FY14 (refers to the period April 1 to March 31) has only compounded the losses of millers.

Disclaimer: This report is prepared by the Ratings Division of Credit Analysis & Research Limited [CARE]. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings (including all divisions) has no financial liability whatsoever to the user of this report.

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