"Despite several representations, verbally as well as in writing, the state did not adopt the 'linkage formula' or even at least rationalize the cane pricing policy," CB Patodia, president, UP Sugar Mills Association (UPSMA), told reporters in the national capital.

"UPSMA, has on 4th August, given a notice suspending crushing operations in 2014-15, to the UP government," he added.

The industry association said owing to the faulty pricing mechanism of the government of Uttar Pradesh, the country's largest sugar producer, the mills are losing around Rs 5.50 for every kilogram of sugar sold due to a hike in cane prices.

The close to 100 private sugar mills in Uttar Pradesh have been at loggerheads with the state government, which makes sugar  companies pay a premium to farmers over the cane price fixed by  the Centre.

While the Central government fixes a Fair and Remunerative Price (FRP) for sugarcane, state governments are free to determine the price they want sugar mills to pay to the farmers for cane.

"The UP government needs to, therefore, enact a law, similar to Maharashtra or Rangarajan Committee recommendations and adopt the linkage formula to ensure automatic determination of cane price in relation to revenue realized from sugar and primary by-products of sugarcane, effective from the next sugar season," said Abinash Verma, director general of Indian Sugar Mills Association (ISMA).

Uttar Pradesh had fixed a cane rate in 2013-14 season which at Rs 280 per quintal is almost Rs 50 more than the Centre's fixed price for the year.

Leading millers said that the state government’s price is unpayable as sugar prices in the domestic and international markets have fallen, leading to increasing losses.

The millers will have sugarcane arrears of over Rs 5,000 crore by the end of the 2013-14 sugar season that will end in September.

The mounting losses are affecting the very viability of the industry that contributes Rs 18,000 crore annually to the state exchequer.

"The credit ratings of sugar companies in Uttar Pradesh are falling and are much lower than those of firms in the west and south, making it difficult to get funds. We face major liquidity problems," said Gursimran Mann, managing director, Simbhaoli Sugars.

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