India's sugar production in the current season will go down because of a month-long delay in crushing by mills in Uttar Pradesh last year. Mills in the state had delayed crushing in order to force the state government to bring down the prices they have to pay farmers.
In the current season, production till January had dropped 16%. UP is likely to record 13% lower production for the full season, Vivek Saraogi, head of Balrampur Chini Mills, one of the largest sugar producers, said.
While the central and state governments set the price that mills have to pay farmers for cane, the sale price of the sweetener is market-determined.
"Sugar production till January 31 stood at 11.54 million tonnes, 16% lower than last year because of late crushing. Uttar Pradesh is likely to produce 6.5 million tonnes in the current season against the 7.5 million tonnes the previous season," Saraogi, whose mills are all located in the state, told analysts in a presentation.
India's sugar season, which begins in October, has lost more than a month in UP because of the delay in crushing.
Mills have been wanting the state government to implement the C Rangarajan committee report on decontrol as production became unviable on a high state advised price of Rs 280 per quintal and subdued market prices.
The committee, among other things, recommended linking rates for cane farmers with the market price of sugar.
Crushing started after the state threatened to cancel licences and the centre promised sops.
But the delay has taken a toll on Balrampur Chini's operations. Its crushing of 1.36 crore quintals since the beginning of the season was down 40% from the 2.27 crore quintal in corresponding period the previous year.
The company recorded a loss during the quarter at Rs 50.76 crore against a profit of Rs 60.22 crore a year ago. Net revenue dropped to Rs 691 crore from Rs 950 crore.
"High cane costs and subdued sugar realisations have resulted in an unviable operating environment for the UP-based mills," Saraogi said.
"The two major sugar-producing states, Maharashtra and Karnataka, have enacted legislations to link cane price to sugar realisations and its byproducts. UP has constituted a committee headed by the chief secretary to look into the matter of linking of sugarcane prices with sugar prices. We are hopeful that a long-term solution on cane pricing will emerge soon and it will improve the sustainability of the sector," he said.