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Explained: Why Maharashtra sugar mills are paying cane fair price in parts

The Sugarcane Control Order of 1966 mandates that mills pay the basic FRP within 14 days of purchase, failing which mills are to pay 15% per year interest.

Written by Parthasarathi Biswas | Pune | Updated: February 12, 2020 11:09:10 am
Why Maharashtra sugar mills are paying cane fair price in parts The Sugarcane Control Order of 1966 mandates that mills pay the basic FRP within 14 days of purchase, failing which mills are to pay 15% per year interest. (File)

This sugarcane crushing season in Maharashtra, more than half the 136 mills that have entered the season have forged an unusual agreement with farmers. It enables the former to pay the government-declared Fair and Remunerative Price (FRP) for cane purchased in three instalments.

What is FRP and how should it be paid?

Before the start of the crushing season, the Commission of Agriculture Cost and Pricing (CACP) declares the season’s FRP, calculated after taking in consideration the cost of production. FRP is linked to recovery — the amount of sugar produced by crushing 1 tonne cane, expressed as a percentage. The higher the recovery, the higher be the sugar produced, and thus the higher the FRP too. At present , the basic FRP at 10% base recovery is Rs 275 per quintal, with every 0.1% increase in recovery resulting in an increase of Rs 2.75 in the FRP.

The Sugarcane Control Order of 1966 mandates that mills pay the basic FRP within 14 days of purchase, failing which mills are to pay 15% per year interest. Sugar commissioners are empowered to recover pending dues by attaching properties of errant mills. The assured scheme of payment had over the years made cane a preferred crop among growers across the country.

While the law mandates payment within 14 days, the payment schedule has not been rigorously followed. During the 1990s, sugar millers in Maharashtra used to meet at the start of the season and take a call about payment depending upon their finances. The first instalment mostly used to be paid within in 14 days of cane delivery, which was usually around 70-80% of the FRP, and the second instalment was paid in April when the mills ended their crushing operations. Depending on the availability of funds, another payment was made during Diwali ahead of the next crushing season. The total realisation of farmers depended on the finances of the mills which ensured that at least the basic FRP was paid.

Since the start of the farmers’ movement by former MP Raju Shetti, the payment schedule underwent a major change. At the start of the crushing season, the farmers’ union in its Oosh Parishad (Cane Conclave) used to make demands for payment, which often was Rs 100-200 above the FRP. Mills had to accede to the demand to prevent disruption in transportation of cane. The first instalment was always the full FRP, while later instalments covered demands made by the farmers.

How do mills generate capital to pay their growers?

Sugar mills pledge their stock of sugar and avail of working capital from banks to pay their growers as well as to fund their operations. Based on the valuation of sugar (at present Rs 3,100 per quintal), banks issue loans to the tune of 75% of the current valuation.

Why did mills feel the need to get into agreements?

During the 2014-15 season, 20 mills in Maharashtra’s Nanded division had defaulted on payment of basic FRP. Prahlad Ingole, a farmer leader, approached the Aurangabad Bench of the Bombay High Court with demands including payment of 15% interest on late payment of FRP. The court eventually asked the sugar commissioner to start the process of calculation of interest. Shekhar Gaikwad, the then sugar commissioner, started the process in 2019 and appointed government auditors to calculate the interest. The Cooperation Minister, while hearing a similar case relating to mills in Kolhapur and Sangli, however, gave a stay on calculation on interest.

Given the financial implications, mills took the cue from the Sugarcane Control order and started making formal agreements with farmers for part-payment. The order mandates payment of FRP within 14 days of cane delivery if there is no agreement otherwise. This leeway is now being used by the mills to get their farmers to sign agreements that would allow mills to pay 75% of the FRP as the first instalment and the rest in subsequent instalments. Of the 136 mills that have entered the crushing season in Maharashtra, 76 have got into such agreements. The payment clause was put in the cane registration forms that farmers sign and submit to the mills. The trend, started by mills in Marathwada, is now being followed across the state.

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What are the ramifications of such an agreement?

It has not gone down well with many farmers’ leaders. They claim the agreement would not stand the test of law as it leaves a farmer without the necessary standing to argue for a fair agreement. In this case, many have said the agreement clause was put in the forms farmers have not read properly, but mills have denied this and said it was only a small section of farmers who were insisting on full payment of FRP. Financial constrains, mills claim, make is impossible for them to pay the full FRP at one go. Until these agreements are challenged in any court of law, mills in Maharashtra will continue to pay their growers as per these agreements.

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