A sweetener reform: Maharashtra set to implement Rangarajan formula for cane prices payable to growers

The 2016-17 season, which technically is from October to September, could be the first one in which Maharashtra’s cane growers are paid as per the Rangarajan formula. The previous Congress-NCP government had, in 2013, set up a Cane Price Control Board for monitoring the implementation of the revenue-sharing formula.

Written by Partha Sarathi Biswas | Pune | Updated: July 20, 2017 4:32 am
 sugarcane production, sugarcane prices, cane prices, monsoon, Maharashtra sugarcane, Pune, Maharashtra farmers, Rangarajan committee, sugarcane mill, maharashtra news, indian express Maharashtra is finally set to implement the Rangarajan committee revenue-sharing formula for cane prices payable to growers

July has gone well so far for Vilas Devkate Patil, as good rains have ensured healthy growth of the standing sugarcane on two out of his five-acres holding. But besides the bumper crop he is hoping to harvest this November — after two bad ones in 2015 and 2016 — there is an additional, more immediate sweetener that this farmer from Mekhali village in Pune district’s Baramati tehsil is looking forward to.

“The Malegaon cooperative sugar mill to which I supply has paid me Rs 2,700 per tonne up to now for my last year’s (2016-17 season) cane. That includes an FRP (fair and remunerative price) of Rs 2,395 as first installment received in February, plus two more of Rs 100 in April and Rs 205 in June. Now, I expect a fourth one of Rs 400 per tonne before Dussehra in September, based on the C. Rangarajan committee formula,” says the 40-year-old grower.

The above formula entitles farmers to a price equivalent to 75 per cent of mills’ average realisation from sale of sugar produced from their cane. At current ex-factory rates of Rs 36/kg and the average sugar recovery of 11.58 per cent from cane crushed by the Malegaon mill, that price comes to Rs 3,100 per tonne — which is what Patil expects.

“They better pay me this, because last year the yields from my two acres were only half of the 140 tonnes or so that I usually harvest. My production costs, too, were about Rs 60,000 per acre, as against

Rs 45,000 in normal years. I had to incur extra costs on electric motors for drawing groundwater, as there was no water from the Nira Left Bank canal,” explains Patil.

The 2016-17 season, which technically is from October to September, could be the first one in which Maharashtra’s cane growers are paid as per the Rangarajan formula. The previous Congress-NCP government had, in 2013, set up a Cane Price Control Board for monitoring the implementation of the revenue-sharing formula. But it was not implemented, as ex-factory sugar prices averaged only Rs 24.92 per kg in 2014-15. At those realisations, farmers would have got a cane price lower than even the FRP fixed by the Centre. In 2015-16, sugar realisations improved to

Rs 31/kg, but mills cited the accumulated losses from previous years as a reason for not paying more than the FRP.

The current season, on the other hand, is seen to be favourable, both from the farmers’ and millers’ standpoint, for implementing the revenue-sharing formula. With sugar production in Maharashtra hitting a ten-year-low of 42 lakh tonnes (lt) in 2016-17, thanks to the cumulative effect of the previous two years’ droughts, ex-factory realisations have averaged Rs 35-36 per kg this season. Higher sugar prices have meant that mills in the state had already made Rs 9,426.71 crore of cane payments by end-June, more than the Rs 8,406.77 crore payable at the FRP. And if the Rangarajan formula gets implemented, they may end up paying even more in the coming months.

The Cane Price Control Board, chaired by the state’s chief secretary and with representatives from both mills and growers, would be meeting next month to decide on the final rates to be paid over the FRP (which, being linked to sugar recovery, varies from factory to factory). The mills are required to submit full accounts relating to the quantity of cane crushed by them, along with their realisations from sale of sugar as well as major by-products (molasses, bagasse and press-mud), by this month-end. The Rangarajan committee had recommended revenue-sharing by mills with growers based 75 per cent of their realisations from sale of sugar or, alternatively, 70 per cent from sale of both sugar and major by-products.

A potential point of dispute here could be harvesting and transport charges (H&T) for cane. The FRP as well as the final cane price payable to farmers is supposed to be calculated after deducting H&T charges. The Rs 2,395 per tonne FRP that Vilas Devkate Patil got paid as first installment, for instance, was arrived at after deducting H&T charges of Rs 408 per tonne. Thus, the FRP actually incurred by the mill, which undertakes harvesting of the cane and its transport from the farmer’s field, amounted to Rs 2,803 per tonne (the FRP is only Rs 2,300 per tonne at a base recovery of 9.5 per cent; the Malegaon factory’s FRP worked out higher because its sugar recovery was 11.58 per cent).

H&T charges are a grey area, with mills in Solapur and the Marathwada region claiming these to be higher than those in western and southern Maharashtra. “H&T costs are at present arbitrarily deducted by mills from the FRP. The Board should streamline this and ensure that these charges are fixed transparently,” noted farmer leader Raju Shetti, who is also Member of Parliament from Hatkalanage constituency in Kolhapur district.

Even bigger a challenge for implementation of the Rangarajan formula comes from sugar price volatility. At current levels of Rs 35-36 per kg, mills can afford to pay the FRP and more. The recent increase in import duty from 40 to 50 per cent, imposition of a single 5 per cent goods and service tax (not much buying was happening in the absence of clarity with regard to the earlier applicable cess and other levies), and pick-up in demand ahead of the festival season have all helped prop up prices in the last couple of weeks.

“Prices should remain more or less in this range. Even if they firm up a bit, they would ease once the next crushing season starts. We hope there is no knee-jerk intervention on the part of the Centre, more so when it has raised the base FRP payable for 2017-18 to Rs 2,550 per tonne,” pointed out Rohit Pawar, chief executive officer of Baramati Agro Ltd, which operates two sugar mills in Maharashtra.

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