There have been widespread protests, and threats by the sugar commissioner of stern action against defaulting mills, and yet cane farmers in Maharashtra are still awaiting full payments for their produce this season. As of March 15, sugar mills in the state have paid only Rs 14,881.01 crore out of the Rs 20,653.02 crore that they owe to farmers against cane purchases from them. The problem of arrears is even worse in Uttar Pradesh, where the unpaid cane dues of mills have crossed Rs 10,000 crore. The intervention of Maharashtra’s sugar commissioner’s office, which had threatened not just to attach and auction properties of defaulting mills but also register criminal cases against their chairmen and directors, is proof of the pressure from the government to ensure payment. That, and the fact that many mill owners in Maharashtra are politicians themselves, is reason enough to believe that the sugar industry is in no position to pay farmers even with the best of intentions.
The inability to pay has to do with the economics of the industry. If a mill in UP were to buy cane at the state government’s “advised” price of Rs 325 per quintal, the bare production cost of sugar at that rate, without factoring in interest outgo and depreciation, will be roughly Rs 34 per kg. As against this, the ex-factory price of sugar is now Rs 31 per kg; many factories are actually selling below even this “minimum” price fixed by the Centre. If the industry is going to lose a minimum of Rs 3 on every kilo of sugar sold, the total loss on 31 million tonnes — the country’s likely production in 2018-19 — will be over Rs 9,300 crore. That’s clearly not sustainable for mills. Nor is it in the farmers’ interest to have factories going belly-up. Governments, both at the Centre and in the states, have only made things worse, whether by fixing cane prices out of sync with sugar realisations or setting monthly sale quotas. For March, mills have been given a target to sell 24.5 lakh tonnes (lt) of sugar, which is way above the 21.09 lt and 19.52 lt of actual sales undertaken in the same month in 2018 and 2017, respectively. The underlying objective behind forcing mills to sell more sugar — which the market cannot absorb — has been to generate more liquidity to enable them to make cane payments. But that has only ended up depressing prices further.
The solution is simple: Cane prices have to be linked to average realisations of mills, both from sugar and primary by-products (molasses and baggase). Let farmers have the freedom to sell to any mill that may want to pay more. If the government wants cane farmers to be paid more, it should credit that amount directly to their bank accounts and not force losses on the industry.