The increase in State Advisory Price (SAP) of sugarcane, along with the cane development incentive announced by private sugar mills, threatens to push state mills in the public and cooperative sector deeper into the red.

On the persuasion of the state government, private mills have agreed to pay a cane development incentive of Rs 25 per quintal, thus taking the price of sugarcane to Rs 190-195 per quintal. The SAP for 2008-09 was Rs 140-145 per quintal.

The higher cane price will put additional financial burden on state-run sugar mills which are inefficient, outdated and too small to have the advantage of economy of scale. Ultimately, it will add to the liability of the state government that has been trying to sell these 61 mills.

In June 2007, the state government had decided to divest its stakes in 33 sugar mills of the UP State Sugar Corporation and 28 mills of the UP Cooperative Sugar Factories Federation. To attract investors, the government had offered to retain the liabilities — including the accumulated losses — and transfer the mills to successful bidders with a clean balance-sheet.

While the accumulated losses of the cooperative federation are over Rs 2,000 crore, the losses of the corporation are close to Rs 8,000 crore.

Against the sugarcane price of Rs 190-195 per quintal being offered officially by private sugar mills, none of the 11 operational mills in the public sector will pay more than the SAP of Rs 165-170 per quintal announced by the state government for 2009-10.

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