However, industry sources said that the mills are already running at a loss of around Rs 1,350 crore, and the additional cost will be difficult to absorb, if it is passed on to them. They attributed stagnant production for the past three years as the as the main reason behind the loss, saying that it led to lower capacity utilisation and increase in the cost of production.
After chairing a meeting in Chennai today, Tamil Nadu Chief Minister O Panneerselvam said, taking the farmers welfare into consideration, the state fixed the FRP at Rs 2,850. This includes the Centre's of Rs 2,300, and other costs such as a contribution of Rs 100 towards transportation. In effect, the state's is an additional Rs 550 over the Centre's price.
Mills in neighbouring Karnataka pay Rs 2,600, while Maharashtra, which is another major producer, pays Rs 2,475 per tonne.
Tamil Nadu is among the top five sugarcane producing states, with 16 sugar mills in operation. Sugar production till December 15 this year was 75,000 tonnes, up from 60,000 tonnes produced by six sugar mills a year ago. The state has 25 private mills and 18 co-operative and public sector mills.
According to industry sources, many of the co-operatives have not paid the Rs 2,850 per tonne fixed by the state government last year, since it was not viable.
Panneerselvam noted when these co-operatives fail to pay the FRP in spite of getting government grants, it becomes difficult for private mills to make good the payment.
Sugarcane production in the state has been hovering around 1.25-1.35 millon tonne during the past three seasons. The industry in Tamil Nadu has earlier produced 2.4 million tonnes of cane in 2011. The state has the capacity to produce three million tonnes, but there is no cane available.
The chief executive officer of a mill said recovery in Tamil Nadu is the lowest, at around nine per cent, compared with 10-11 per cent in Karnataka and Maharashtra, since capacity utilisation is just 40-45 per cent in the state's mills.
The industry has been asking the state to follow the Karnataka and Maharashtra revenue sharing formula when it comes to fixing up of the price.
Meanwhile, the chief minister ordered the formation a committee consisting of mills, farmers and government representatives, to recommend the price for sugarcane.