Government Grants To Sugar Mill Owners Of UP And Maharashtra

Government’s decision to resolve possible deadlock situations in the sugar industries of Maharashtra and Uttar Pradesh: 

Keeping in mind the large vote banks of Maharashtra and Uttar Pradesh, the Center has acceded to a financial aid for the sugar industry of our country. The consent of the Government to provide an interest free ‘bailout package’ for the sugar industries, beleaguered with debt, comes in congruence with most of the private sector sugar mills of Uttar Pradesh going on strike as a protest to the high sugar prices calibrated by the state. The sugar mills happen to be in debt heavily as they were unable to pay the dues of the cane farmers in the last few years and the arrears have accumulated to Rs 2400 crores. A similar scenario of the sugar industry prevails in Maharashtra, the largest producer of sugar in India. The financial aid of the government is aimed at neutralizing the brewing conflict between the mill owners and the cane farmers in the states of Maharashtra and UP, which have a stake of nearly 75% of the sugar produced in the country.

Although the Government has enough stock to suffice for the next six months, a consistent cessation in the sugar production will eventually result in the price hike of sugar, which may even spread to the already bloated food prices. The flip side of the story is that, the states of Maharshtra and Uttar Pradesh account for almost 25% seats in the Loksabha and with the 2014 elections impending, the Government cannot afford any issues in these two states that might upset the vote bank equations.

Sugar trading scenario in Uttar Pradesh:

Sugar trading faces an uncertain future following the announcement of the Uttar Pradesh Sugar Industry calling a cessation on sugar production for the new crop season in the face of the high price of sugar as affixed by the State. The decision of the sugar millers has caused widespread panic among the sugar merchants who were initially euphoric about the excess stock being cleared, which will reflect as a revision on the existing sugar prices. As confirmed by Gopal Maheshwari, President, Kanpur Sugar Merchant’s Association, “If the stalemate continues and there is no clarity on whether the mills would function or not and if this is the final price of sugar by December, which seems unlikely, clearing of stock could shoot up sugar prices to32 per kg of sugar and may be higher”.

The present price of sugar in UP is Rs 29 to 30 per kg. As apprehended by one of the biggest sugar merchants of the Muzzafurnagar mandi, “The cane price announcement could also lead to traders hoarding the sugar. But both mills and traders/brokers would want to clear their surplus stock. This is a double – side sword situation for us. Sugar prices are set to get volatile hereafter. While the air is buzzing with cerebrations regarding the future of UP’s Rs 3500 crore purely agriculture based sugar industry, the concern that the sugar from Maharashtra may also capture the state’s sugar markets looms large. As confirmed by the National Federation of Sugar Co – operative Factories, in spite of the state calibrated uncertain sugar prices in Maharashtra, 80 out of the total 180 sugar mills in Maharashtra have already commenced crushing operations. As commented by a member of the Kanpur Sugar Merchant’s Association, Western UP, “When sugar price crashed to 26 per kg around Diwali in Kohlapur mandi, Maharashtra, traders from North India brought and off loaded sugar in UP. Similar situations could develop again if stocks get clear and crushing does not commence on time”.

The atmosphere of Muzzafurnagar, one of the largest hubs for sugar trading in UP and the recent victim of communal riots, is pulsating with impending violence than can be triggered by the discontented and agitated cane farmers. As confirmed by one of the important sugar merchants of the Muzzafurnagar mandi, “Farmers have already raised dissent voices against the millers for not paying off their cane arrears. Now with a possibility of a no sugar season and hence delayed or no cane buying, these farmers would go on rampant protest against the government and the mills”.

Endeavors of the Food Ministry to extend financial aid to the debt ridden sugar – mill owners:

The Food Ministry is presently involved in processing a grant of Rs 3000 to 3500 crores for the sugar manufacturing industries of India. After considering a host of options, the decision of the Food Ministry is the grant of loans devoid of interest, to the sugarcane industries, in an effort to extricate them from their financial woes. The loan granted to the sugarcane millers will be conjoined with the net excise duties paid by the millers for the crop seasons of 2012 – 2013 and 2013 – 2014, and the millers are supposed to pay back the principal amounts in 24 easy installments. The blueprint for this financial aid will be placed before the Cabinet by the Food Ministry by next week for final ratification. The Government will pay for the 12% interest in entirety of the loans sanctioned by the banks. The Ministry of Commerce will supposedly be vested with the responsibility of increasing the duty and other issues and effectively curbing the time period for the re – export of imported sugar.

The sugar industry had also been instructed to approach the Ministry of Commerce for the consideration of the above mentioned issues. In an earlier suggestion, the Food Ministry had also expressed its decisions of relaxing the export procedures of sugar export from India. However, such export amendments were mainly aimed for the export of the excess of 2 to 2.5 million tons in the domestic sugar production for the crop season commencing from October, 2013 to September 2014. As per the latest estimates of the Food Ministry, the sugar production for the crop season of October, 2013 to September 2014 will be fractionally less than the 235 – 245 lakh tons of sugar produced in the last crop season, given the fact that the area under sugarcane crop has also decreased from 5.03 million hectares in the last season to 4.92 million hectares this season.

Politicians perturbed by the sugar mill – owners and cane farmers issues:

As of 27th November, 2013, a meeting was held between Chief Minister of Maharashtra, Pritviraj Chavan, Maharashtra Co – Operative Millers Association, Prime Minister Manmohan Singh and his Cabinet colleagues, Sharad Pawar, P Chidambaram and Ajit Singh to resolve the sugar issues at the earliest. Food Minister K V Thomas has informed the media that, the idea of interest free loans to the stricken mill – owners were under serious consideration in a meeting held between the Agriculture Minister Sharad Pawar and Finance Minister P Chidambaram and that, “A decision will be taken soon”. While banks are reluctant to grant a loan of Rs 3000 crores at a 12% interest to the debt ridden mill – owners for two years, the interest for which will amount to Rs 400 crores, the Food Secretary Sudhir Kumar had informed that the interest coefficient will be paid off by the Government from the sugar development fund which has a standing balance of Rs 1000 crores.

In UP, the ‘State Advisory Price’ (SAP) has been calibrated at Rs 280 per quintal by the state while the millers have declined to pay not more than Rs 250. With the market price of sugar hovering at Rs 2635 – 2655 per quintal, the industry representatives prefer to remain non – committal in the face of the demands of the cane farmers of Maharashtra to affix the cane prices at Rs 300 – 350 per quintal.


With the promise of the interest free bailout packages from the Government to the sugar industry, the industry is further pressing the issue of a hike in the import duties of sugar. Director General Abinash Verma of the Indian Sugar Mills Association (ISMA) was quite vocal about this issue, “The government should increase the import duty from the current 15% to at least 40% on both white and raw sugar”. The predicted estimates of sugar yield for this season is as follows: Karnataka – 34 lakh tons, Maharashtra – 78 lakh tons, Uttar Pradesh – 77 lakh tons and Tamilnadu – 16.4 lakh tons (figures subject to revision by ISMA in January).