Post Poll: A sweetener for sugar

Post Poll: A sweetener for sugar

A BJP government in both the Centre and state could help fix the endemic problem of cane arrears in Uttar Pradesh

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The Upper Doab Sugar Mills factory at Shamli in Uttar Pradesh. Praveen Khanna

The same party ruling at the Centre, and now the state, has given a ray of hope to Uttar Pradesh’s (UP’s) 116 operational sugar mills as well as 25 lakh-odd cane growers, just emerging out of three consecutive bad seasons. With sugar prices improving — ex-factory realisations are currently around Rs 36.50 a kg, compared with the average  Rs 31.74 and Rs 25.64 for the 2015-16 and 2014-15 seasons (October-September), respectively, and the lows of Rs 22.54 touched in July 2015 — and the Bharatiya Janata Party (BJP) in power both in New Delhi and Lucknow, there is renewed optimism over the fortunes of a hitherto troubled industry.

What’s more, UP this season will overtake Maharashtra as the country’s leading sugar producer. Its mills have produced 69.12 lakh tonnes (lt) as on March 14, and with crushing to continue beyond mid-April, output could cross 85 lt out of India’s likely 200 lt or so in the 2016-17 season. While 100 out of UP’s 116 mills are still running, 148 out of the 150 factories in Maharashtra have already shut for lack of cane and production may dip below 42 lt, from 84.15 lt in 2015-16 and 105.14 lt in 2014-15.

“There’s no better time to reform UP’s sugar sector than now, when things are looking good. The focus should be on cane pricing reform and ending the problem of payment arrears to farmers once and for all. This can happen by linking cane prices to sugar realisations, based on the C Rangarajan Committee’s report,” said Ajit S Shriram, joint managing director of DCM Shriram Ltd, which has three mills in Hardoi and one at Lakhimpur Kheri district.

The committee under the chairman of the Prime Minister’s Economic Advisory Council in the previous United Progressive Alliance regime had recommended a ‘value-sharing’ formula, wherein the cane price payable would be 75 per cent of the average ex-factory realisations on sugar. At Rs 3,650 per quintal, the cane price as per the Rangarajan formula works out to roughly Rs 274 per quintal, higher than the Centre’s ‘fair and remunerative’ rate of Rs 254.2 per quintal taking UP’s average sugar recovery from cane at 10.5 per cent. But it is below the UP government’s state advised price (SAP) of Rs 305 for general and Rs 315 for early-maturing cane varieties.


“Ideally, sugar realisations should be Rs 4,000-plus to enable us pay the SAP. They must be allowed to go to those levels, as this is an industry, unlike fruits or vegetables, where farmers get a fair share of the consumer price. Also, if people can fork out Rs 52 per litre on 30 litres of milk per month, why cannot they pay the same rate for just 5 kg of sugar?” Shriram pointed out.  However, farmer leader and convenor of the Rashtriya Kisan Mazdoor Sangathan, V M Singh, opposed the Rangarajan formula’s adoption. “If millers want the sugar price to be a mark-up over cane cost, the same principle should apply to farmers as well. After all, we also incur costs on diesel, labour and other inputs. Shouldn’t these be factored into our cane price, too?” he asked. The Rangarajan formula can work in Maharashtra, where sugar recovery averaged 11.3-11.4 per cent and cane yields were also higher. “Moreover, in Maharashtra, cane harvesting and transportation costs, which come to Rs 50-55 per quintal, are borne by the factories. In UP, the farmer pays for these,” Singh added.

Both Shriram and Singh were agreed on one thing, though: A BJP government both at the Centre and in UP offers a golden opportunity to resolve the endemic problem of cane arrears. In the ongoing 2016-17 season, UP mills have so far bought cane worth Rs 20,473.51 crore at the SAP. While Rs 18,264.20 crore of this was payable not later than 14 days after delivery, they have only paid Rs 14,345.12 crore. That translates into arrears of Rs 3,919.08 crore, over and above dues of Rs 255.22 crore and Rs 44.75 crore for the previous two seasons. Although some groups — DCM Shriram, Balrampur Chini, Triveni Engineering, Dhampur Sugar, Dalmia Bharat and Dwarikesh Sugar Industries — have no cane dues, this isn’t the case with most others.

Significantly, the BJP, in its 2017 UP election manifesto, has promised that its government will ensure farmers get full payment for their cane within 14 days of sale. “This provision already exists in the UP Sugarcane (Regulation of Supply and Purchase) Act of 1953. If the promise signals an intent to implement the law, we welcome it,” stated Singh. His organisation won a major victory when the Allahabad High Court, on March 9, set aside the last Samajwadi Party government’s decision to waive the interest on delayed cane payments by UP sugar mills for the 2012-13, 2013-14 and 2014-15 seasons. While section 17(3) of the 1953 Act does give the state government the power to waive interest, the court, however, ruled that the relevant Cabinet decisions – in May 2015 and October 2016, involving a total amount of over Rs 2,000 crore – were “totally lop sided/one way” and taken with “no application of mind”. Interest on delayed payments, it held, was a “substantive right and not a bounty” to growers. That being so, the power of waiver could be exercised only in “exceptional circumstances” and not in a “routine manner”, as the UP government had seemingly done.

“The state government waived the interest, citing mills’ inability to pay in view of low sugar prices. But by that logic, shouldn’t the interest being paid by farmers on loans from state-owned and cooperative banks also have been waived? In this case, farmers were basically supplying cane to mill at zero interest, even while borrowing at 10-15 per cent or more themselves,” noted Singh. The BJP UP manifesto, incidentally, has also talked of waiving crop loans for all small and marginal farmers. According to Singh, the Allahabad High Court order will “strengthen the new government’s hand” to effectively enforce the 1953 Act. “If mills don’t pay within the stipulated 14-day period, they will have to shell out interest. And that should be deterrent enough,” he claimed.