MUMBAI: Plunging sugar prices have forced at least one Indian sugar mill to default on bank loans and could drive others to do the same, the latest sign of the heavy toll a four-year-old supply glut in the country is taking on producers of the sweetener.

One of the country’s largest sugar mills, Mawana Sugars Ltd, has defaulted on 2.5 billion rupees ($40 million) of outstanding loans from a consortium of lenders, according to an official from the company.

“We are losing 5-6 rup­ees per kg of sugar we produce. It is not viable to operate mills with the current pricing of sugar and cane,” said Rajendra Khanna, a director at the company which posted a 245.2m rup­ee loss in the three months ending in June. Squeezed margins in sugar mills internationally, cau­s­ed by depressed prices after years of global over-supply, are hastening closures and consolidation in the sector around the world.

In India, millers face an even steeper challenge as the government in the main cane-growing state of Uttar Pradesh, has told mills to pay 280 rupees per 100 kg of cane, compared to the 210 rupees recommended by the central government as its so-called ‘fair and remunerative price’.

Uttar Pradesh’s government is yet to come out with a cane price for the 2014-15 marketing year that started on Oct 1, but most mills in the state have decided to suspend cane crushing in the new season unless the state links cane prices to sugar prices.

Published in Dawn, October 10th, 2014