Why sugarcane may not be a bitter election issue this time

This would be the first time in recent memory, when the state’s mills will start crushing for a new SY with very little cane dues from the previous year. Such arrears carried forward peaked at nearly Rs 8,450 crore in 2019-20: Mills ended that SY paying just 76.5% of their total SAP value of cane purchases.

By contrast, they have already paid up 83.4% and may not owe more than a few hundred crore to farmers at the end of this SY.

Table 1.

Limited price hikes

The Yogi Adityanath-led BJP government in UP has faced criticism for not adequately hiking cane prices.

During its six years, the SAP of sugarcane has been raised from Rs 305 per quintal for “general” and Rs 315/quintal for “early-maturing” varieties in SY 2016-17, to Rs 340 and Rs 350/quintal respectively in SY 2022-23. That works out to a cumulative price increase of Rs 35/quintal over six years.

As against this, during the previous Samajwadi Party government of Akhilesh Yadav, the cane SAP was raised from Rs 240-250/quintal in SY 2011-12 to Rs 305-315/quintal in SY 2016-17 – an increase of Rs 65/quintal over only five years. It was even more under the Mayawati-led Bahujan Samaj Party administration: From Rs 125-130/quintal in SY 2006-07 to Rs 240-250/quintal in SY 2011-12, i.e. Rs 115-120/quintal over five years.

The Adityanath government has, however, sought to deflect the criticism by pointing to the total value of payments made to UP’s cane farmers. During the six SYs from 2011-12 to 2016-17, these added up to just over Rs 124,058 crore. In the last six SYs from 2017-18 to 2022-23, mills have cumulatively paid almost Rs 204,292 crore. That figure should cross Rs 210,000 crore at the end of the current SY.

“Cane payments by our mills to farmers in the last six years have exceeded what they made during the preceding 22 years,” claimed the earlier-quoted official.

One reason for the higher payments is the larger quantities of cane crushed by mills during the last six years, relative to the earlier six years (see Table 1). These have been enabled by the average cane yields of farmers in UP going up from around 72 tonnes to 82 tonnes per hectare between 2016-17 and 2022-23. More money has, thus, flowed to farmers from higher yields and quantity of cane supplied than from SAP increases, which have been limited during the last six years.

More flexibility for SAP increase

That said, there is likelihood of – and perhaps scope for – a significant raise in cane prices payable by mills in the ensuing 2023-24 SY.

The Adityanath government seems to have kept the powder dry for that before the 2024 national elections; it wouldn’t want the Opposition to make ganna (sugarcane) a major poll issue. Low cane payment arrears and an SAP hike of Rs 20-25/quintal might help achieve that objective. This, even as the Centre, last week, increased its own basic “fair and remunerative price” of cane from Rs 305 to Rs 315 per cent quintal for the new SY.

A favourable factor here is sugar prices. UP mills are at present realising an average Rs 36/kg, compared to Rs 32 levels three years ago. Their realisations could be even more – upwards of Rs 45/kg – from export of sugar, which is now banned.

While mills are losing from denial of export opportunity, they have benefited from the supply of ethanol to oil marketing companies for blending with petrol, reducing their dependence on sugar sales. UP’s ethanol production alone has more than trebled from 43 crore litres in 2016-17 (December-November) to 138 crore litres in 2021-22, and projected at 160 crore litres in 2022-23.

Delicate supply-demand balance

Tilting the scales further in favour of cane growers is the uncertainty with regard to sugar supplies. The current SY is expected to close with stocks of 6.3 millon tonnes (mt). That’s less than half the all-time-high ending stocks of 14.3 mt for 2018-19 (see Table 1) and the lowest since the 3.9 mt of 2016-17.

The likely 6.3 mt sugar stocks can meet some 2.7 months of domestic consumption. Given that mills would also start full-fledged crushing operations after Diwali (falling on November 12) – boiler firing happens before around Dussehra (on October 24) – there shouldn’t be supply issues in the normal course.

But the real source of uncertainty is the monsoon. “We need rain during July-September, coinciding with the grand growth stage of the crop when its tillers (shoots) develop into millable canes. That period decides yields and ultimately sucrose (sugar) accumulation in the cane,” noted Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd.

The monsoon had a delayed start in June, with a late surge somewhat making up for a large rainfall deficiency during the first half. “That rain has definitely helped the standing crop. But more rainfall is required to help fill our reservoirs and recharge the groundwater, which will irrigate the cane after September,” added Naiknavare.

For the moment, everybody’s keeping their fingers crossed on the monsoon – which will decide how much sugar the country would produce in the SY 2023-24 to add to its just-about comfortable opening stocks.