UP sugar stocks sweeter after firms decline to run mills

Shares of sugar producers based in Uttar Pradesh soared as much as 18 per cent on Wednesday after the companies decided to keep their mills shut this season due to high cane prices.

This is the first time in the state's history that mills have refused to start crushing cane.

UP's biggest player Bajaj Hindusthan was trading at Rs 14.17, up over 8 per cent while Balrampur Chini was up nearly 6 per cent. Triveni Engineering was up 10 per cent while Dhampur Sugar was up 18 per cent. (Quotes as of 11.33 am for the Bombay Stock Exchange)

"The state government has been fixing unreasonable, unaffordable and illogical state advised price (SAP) for sugarcane without giving due consideration to the paying capacity of the sugar mills. This has already caused huge losses to us and created an unavoidable situation, which is beyond our control to continue to run the operation in losses", Bajaj Hindusthan informed to the UP government and the stock exchanges last evening. Similar communications have been made by Balrampur Chini, DSCL, Triveni Engineering, etc.

The UP government had directed mills to begin operations by November 25. However, the industry said that it cannot begin operations until the pricing of sugarcane is clear.

Last year, the mills paid a price of Rs 280 per quintal. With this the value of sugarcane purchased by the mills was Rs 22,000 crore. However, as sugar prices remained depressed, they could not make the entire payment.

The industry owes around Rs 2,300 crore to the farmers.

The industry has stated that this season they cannot pay a price of more than Rs 225 per quintal while a state price advisory committee is learnt to have recommended a price of Rs 305 per quintal.

Rahul Bhatnagar, Principal Secretary of the state sugar industry told Business Today that prices can never go down from one season to the other. "The government will announce the price shortly and then see what can be done," he said. Some of the private companies like Wave and Rana Sugars have agreed to run mills, he added.

Livelihood of around 7 million sugarcane farmers and their families in the state is dependent on sugarcane and they also constitute a sizeable vote bank. "We are neither prepared to run the operation in losses nor can in these circumstances forcibly commence operations in violation of our constitutional and legal rights," said Bajaj Hindusthan in its letter.

Pointing to the possible law and order problem arising out of current circumstances, Bajaj Hindusthan said, "We have to clarify that the situation will arise without any fault on the part of the sugar mills. The sugar mills shall not have any responsibility."

UP is the second biggest sugar producing state and accounts for 30 per cent of the output. A prolonged delay in state's crushing operations could trigger a rise in sugar prices. As things stand today, most mills cannot begin operations before the first week of December even if this standoff comes to an end on Wednesday.
ALOK KUMAR
PGDM 3rd SEM