New Delhi, Aug 14 (IANS): The government could raise import duty on sugar to protect mills if they clear farmers' cane arrears, Food Minister Ram Vilas Paswan said Thursday.

"We are ready to raise the import tax, allow ethanol blending to 10 percent, give some soft loans and export incentives for raw sugar but mills need to assure that they will clear farmers' dues," Paswan told reporters here after meeting mill owners and representatives of cane growing states.

Higher duties will halt imports of sugar and help support local prices.

Sugar mills in Uttar Pradesh last week said they will suspend operations from the 2014-15 crushing season starting October unless the state government accedes to their demand to link the sugarcane price to the price of sugar.

Sugar mills in Uttar Pradesh, the second biggest producer in the country, owe farmers over Rs.5000 crore, which they have not paid due to lower sugar prices.

"We're taking initiatives to help end the impasse but we want mills to clear cane arrears and start cane crushing next year," Paswan said.

The minister had, in June, said import duty could be raised to 40 percent from 15 percent.

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 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.