The state of Uttar Pradesh (UP), despite being the second-largest sugar producer in the country has earned a dubious distinction of becoming a quagmire for the sugarcane farmers and sugar mills of the state and their inability to extricate themselves from the continuous crisis which has been plaguing the sector for the past few years, according to CARE Research. ''The UP sugar industry has been reeling under high sugarcane prices and low sugar sale realizations leading to recurring losses to mills and mounting cane arrears,'' it said.

''The contentious issue of aligning the cane price with sugar prices has largely been unaddressed and with no development on the rationalization of the cane pricing policy of the state government, the private millers in the state of UP have issued notices for suspension of crushing activities ahead of the sugar season 2014-15. An early resolution for the current faceoff between the millers and the UP state government, devising a mechanism for ensuring that the advances disbursed for cane payment reaches the farmers without delay and cane pricing linkage shall be the key for resurrecting the confidence in the sector.''

''The global sugar stock surplus has kept the international sugar prices suppressed for four consecutive years which has not only squeezed the margins of the firms but also forced closure of mills and consolidation in the sector. The domestic sugar prices have also remained subdued due to surplus sugar stock and stagnant consumption pattern. The sugar prices started firming up recently on announcement of export subsidy and estimated lower sugar production during the current season due to sporadic rain fall. However, the latest estimates as per the Department of Food & Public Distribution do not expect any shortfall in production due to deficient rainfall,'' it said.

''Besides the low sugar prices, the state of UP also has to cope with steep challenge of negotiating with state advised prices arbitrarily set by the state government which is far higher than the fair and remunerative prices set by the central government. The UP government has retained SAP at Rs 280 a quintal for the sugar season 2014-15 which remains significantly higher than the FRP.''

''Going forward, an early resolution for the current faceoff between the millers and the UP state government, devising a mechanism for ensuring that the advances disbursed for cane payment reaches the farmers without delay and cane pricing linkage shall be the key for resurrecting the confidence in the sector,'' added CARE Research.