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Monday, April 19, 2021

Bitter sugar, curdled milk

The real problems in these two major farm commodities may surface only after October.

Written by Harish Damodaran , Parthasarathi Biswas | New Delhi |
Updated: July 19, 2018 11:06:16 am
The opening stock of skimmed milk powder with dairies this October is expected at 2.4-2.5 lakh tonne when ideally it should be zero. (Archive)

On May 31, sugar mills in Uttar Pradesh (UP) owed Rs 12,601.48 crore in unpaid dues against cane supplied by growers during the 2017-18 season (October-September). More than one-and-half months later, as on Wednesday, they have made payments of Rs 23,902.79 crore out of the Rs 35,447.91 crore value of cane purchased at the UP government’s state advised price (SAP) of Rs 315 per quintal for “general” and Rs 325 for “early-maturing” varieties. That translates into arrears of Rs 11,545.12 crore.

The slow discharge of dues comes despite the Narendra Modi government, on June 6, announcing a “Rs 7,000 crore” package – entailing, among other things, the creation of a 30 lakh tonne (lt) sugar buffer stock with mills (on which the interest and storage expenses would be borne by the Centre), restoration of the old system of monthly sale quotas, and fixation of a minimum ex-factory price of Rs 29 per kg. But the real crisis pertains not to the current level of arrears, as much as the likely situation three months from now, when crushing for the next 2018-19 season is scheduled to take off.

Assuming UP mills can sell another 21 lt – the actual sugar sale quota for the state has been only 6.24 lt in June and 5.48 lt in July – their gross realisation at Rs 29/kg would be around Rs 6,100 crore. If three-fourths of this goes to farmers — mills also have to pay for employees’ salaries, plant maintenance and interest charges on borrowings — it would still leave cane arrears of roughly Rs 7,000 crore.

READ | Cane fair and remunerative price hiked by Rs 20/quintal

Simply put, mills in UP will start crushing in the new 2018-19 season from mid-October with payment dues of Rs 7,000 crore-plus to growers. So, even as they crush new cane, farmers would be receiving payments for the crop that was supplied in the previous season.

In Maharashtra, there will be no problem of cane arrears per se, partly because mills are obliged to pay only the Centre’s fair and remunerative price (FRP). That, for 2017-18, worked out to an average of Rs 301.6 per quintal for the state, which was below UP’s SAP of Rs 315-325. As on July 15, the cane dues of Maharashtra mills were just Rs 848.31 crore, as against a total payable amount of Rs 21,276.88 crore for the season after deducting harvesting and transport charges.

However, in both Maharashtra and UP, the question that is being asked is: Will mills crush in the first place this time? The reason for it is the huge opening stocks of sugar lying with them. When the current season began in October 1, UP factories had about 10 lt stocks, with their Maharashtra counterparts, too, holding a similar quantity. But mills in UP are projected to start the next season with 50 lt of unsold sugar, while Maharashtra will have 40 lt. Worse, both states are staring at the prospect of production in 2018-19 touching new highs of 130-135 lt (UP) and 110-115 lt (Maharashtra) — on top of their already achieved respective record of 120.50 lt and 107.15 lt this season.

No wonder, UP mills have refused to even participate in cane area surveys, which the state government jointly undertakes with them to make preliminary estimates of crop size. These surveys, normally done in June, are a precursor to “reservation” of cane area for individual factories and fixation of SAPs, which happens about a month before crushing starts.

“This time, our members have made it clear that, given our inability to clear outstanding cane dues and, moreover, uncertainty on what lies ahead, there’s no point taking part in the surveys. The fact that there could be a further SAP hike, in view of the upcoming elections, makes us wary of even taking up crushing operations for the new season,” said an official from the UP Sugar Mills Association.

The situation is more or less the same in milk. Dairies in Maharashtra are now paying farmers between Rs 17 and Rs 23 per litre for cow milk containing 3.5 per cent fat and 8.5 per cent SNF (solids-not-fat). This is as against Rs 25-28 per litre a year ago. The slashing of procurement prices has been on account of skimmed milk powder (SMP) realisations declining from Rs 170-180 to Rs 130-140 per kg in the last one year. This, even as unsold powder stocks lying with dairies across India are estimated at around 3 lt.

But again, the worst is yet to come. The “flush season” for milk — when animals produce more with improved availability of fodder and water, along with reduction in temperature and humidity levels — is generally from June till January in southern states such as Karnataka and Tamil Nadu. In the rest of the country, it starts from October and extends till March before the onset of summer. The peak flush, when production in all regions simultaneously goes up, is from October.

Like in the case of sugar, the opening stock of powder with dairies this October is expected at 2.4-2.5 lt — when ideally it should be zero. And as more milk starts flowing in, it could result in a situation where dairies are in no position to even procure from farmers. From every 100 litres (103 kg) of cow milk that they process, dairies can produce some 8.75 kg of SMP and 3.6 kg ghee. Even at realisations of Rs 140/kg for SMP and Rs 320/kg for ghee, the gross revenue will not exceed Rs 2,400. Net of processing costs of Rs 300 and post-procurement (mainly chilling and transport) expenses of Rs 200, they can pay only Rs 18-19 per litre to farmers.

One way out is to get rid of the surplus powder stocks through exports. That’s easier said, though, when SMP from New Zealand is quoting at $ 1,949 per tonne or Rs 133.5 per kg at current exchange rates. Since India hasn’t exported for a long time, it will probably have to offer an even lower rate of Rs 120 per kg. While the Modi government, earlier this month, announced a 10 per cent subsidy on SMP exports, industry sources believe “it is too little and too late”. In any case, pushing out even 50,000 tonnes before October is not going to be easy.

The coming October will also be when the real surplus problems in sugar and milk would manifest themselves. How it plays out politically, ahead of next year’s big elections, remains to be seen.

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