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Uttar Pradesh sugar mill strike comes as sweet news to Maharashtra millers

Co such as Renuka Sugars to benefit

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Implementation of C Rangarajan Committee report by Maharashtra and Karnataka has helped companies operating sugar mills in the two states while their counterparts operating in Uttar Pradesh are facing difficult times.

Under the Rangarajan Committee formula, 75% of the sugar prices has to be given to the farmers while 25% is to be retained as conversion cost, which includes all expenses related to production.
Uttar Pradesh has so far refused to implement the formula, instead announcing its own cane prices

Vivek Saraogi, managing director of Balrampur Chini Mills, said this has rendered the operations of UP-based mills unviable, while companies operating mills in Maharashtra and Karnataka, such as Shree Renuka Sugars, are benefiting due to the change in policies in these states.

The UP mills, saddled with losses of Rs 3,500 crore, on Tuesday announced suspension of operations – ahead of the sugar season beginning October, demanding linking of cane prices paid to farmers to sugar prices.

"Rangarajan Committee has been immediately adopted by two sugar producing states, Maharashtra and Karnataka, producing 50% of country's production. These two states can now produce sugar at a cost of Rs 30 a kg while Balrampur's (whose mills are all located in UP) cost is about Rs 35-36. Rajasthan Haryana and Delhi, natural markets for UP mills, are being served by mills of Maharashtra and Karnataka," Saraogi, MD of Balrampur Chini and a major industry voice told shareholders at the company's annual general meeting.

The UP government has fixed the cane price at Rs 280 per quintal for the current season, which the mills' association said renders the industry unviable, and it is now unable to clear dues to farmers which have touched Rs 7,000 crore.

"With sugar prices ruling at Rs 31, and due to this differentials in cost of production, we are saddled with inventory as we can't sell. Having no avenue to pay to the farmers because of no cash flows or bank finance, we have no other option but to continuously request the UP government to link cane prices to sugar prices," Saraogi said.

Last November too, sixty mills in UP, including Balrampur and Bajaj, stopped operations but were forced to reopen after the state took legal steps including arrests of some mill owners.

"Some people say this is just a threat but let me assure that it is not. It is not an ultimatum. Previously the government has used coercive tactics but we are not threatening to close down but just telling that we can't function. We are doing this as we have no other options," Saraogi said.

"Year-on-year cane prices is being fixed in UP that defies all economic rationale. World over cane prices are not something which is announced but is a derived price from sugar. Rangarajan Committee did an extensive global study and visited all sugar producing regions of the country after which it came out with a formula," he said.

"But we do hope there would be dialogue and resolution, and hope that politics would get out of the industry."

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