September 25, 2014
A pricing deadlock between the government and sugar millers is threatening to paralyze the sugar industry in the state of Uttar Pradesh which produces 30% of India’s sugar output. The government has set a price for sugar cane that is uncorrelated to the market price of sugar to gain political support from the state’s cane growers. By doing so the sugar mills in the industry are running at costs significantly above factory gate sugar prices forcing many to shut down. Last year millers delayed crushing demanding that the government rationalize cane prices. After two weeks the government stated that it would consider linking cane prices to sugar market prices however it has not done so. This year millers are threatening to delay crushing for a second consecutive year. The government has seized 60% of the 3.5 million tons of unsold sugar being held at crushing plants to settle what is owed to cane farmers, and as the cycle continues, crushing plants are shutting down creating a stark outlook for the sugar industry in the state.
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