NEW DELHI, NOV 19: Haryana Chief Minister Om Prakash Chautala has set off a virtual sugarcane war with his decision last week to hike the state-advised-price of cane in his State by a whopping Rs 14 per quintal. What will follow, with states like Punjab and Uttar Pradesh now under severe pressure to ape Chautala, is that the sugar mills in these states will now run up huge losses. And since they will then be too broke to pay the farmers, the State Governments' will in turn loan them funds, which will never pay them back.In Punjab, for instance, a Rs 13 per quintal hike in the state-advised-cane price last year resulted in the public sector and co-operative mills running up losses of Rs 43 crore - over the last five years this was Rs 176 crore. For states like Haryana and Uttar Pradesh, last five years' losses are Rs 151 and Rs 1,206 crore respectively. As a result, the mills are in no position to pay the farmers for the cane they buy from them - arrears for UP farmers last year was Rs 262 crore duringApril. In Punjab, private mills still owe farmers around Rs 20 crore.To prevent farmers from suffering unduly, last year, the Punjab Government diverted Rs 17 crore from the Punjab Rural Development Board as loans to these cane mills, and also deferred the interest and repayment of principal due to the financial institutions and banks. Over the last four or five years, various governments in Punjab have `lent' Rs 113 crore from the Rural Development Fund to these cane mills. Other states like Haryana and Uttar Pradesh go in for variations of the same principle of diverting state funds. And since these mills are in no position to return these funds, that means the Government is actually bearing the losses. Correction: taxpayers like us are bearing the losses.In Punjab, based on the possibility that the cane prices may be hiked equally sharply soon, the co-operative sector mills have already put forward their financial demands to Chief Minister Parkash Singh Badal. The state co-ops have estimated thatthey will need additional assistance of Rs 50 crore for clearing cane dues - and that's assuming Punjab does not hike cane prices. If it does, it is estimated that it will require a whopping Rs 3.3 crore for each one rupee hike in cane prices. So, if the Punjab Government hikes prices of cane by Rs 14 per quintal, it will have to shell out an additional Rs 46.2 crore from the Rural Development Fund.The reason for the huge losses of the sugar mills is simple. With the government forcing mills to sell them 40 per cent of their produce at fixed prices, the only way they can make profits is if the free-market prices are very high. But by allowing cheaper imports, there's a ceiling to the free-market prices. Put simply, a one rupee rise in the price that has to be paid for cane (this is fixed by the State Government) results in an increase in the cost of production by Rs 18 per quintal. So, while the break-even prices for sugar in Punjab have gone up from Rs 1,349 per quintal in 1994-95 to Rs 1,802 last year,free-market prices have gone up from only Rs 1,177 to Rs 1,409 in the same period. The States' politicians, of course, continue to remain oblivious of such hard realities.
