The Narendra Modi government has done well not to hike the fair and remunerative price (FRP) for sugarcane in the ensuing 2019-20 crushing season from October. The FRP has been retained at the current level of Rs 275 per quintal, linked to a basic sugar recovery of 10 per cent from cane, despite Maharashtra state elections that are due in just over two months. The decision is clearly an acceptance of ground reality, wherein mills are struggling to pay even the existing FRP. As on July 15, Maharashtra mills had cane arrears of Rs 805.76 crore, against the total FRP payments of Rs 23,173.29 crore for the 2018-19 season. It is even worse in Uttar Pradesh, where out of the cane worth Rs 33,046.76 crore bought at the state government’s “advised” price (SAP) of Rs 315-320 per quintal — almost equal to the Centre’s FRP at an average sugar recovery of 11.48 per cent for this season — mills have paid only Rs 24,535.65 crore till July 25.
At the root of mounting cane dues is politics of a destructive kind. Fixing cane prices totally out of sync with sugar realisations benefits neither mills nor farmers. Mills are supposed to pay the FRP (or SAP) within 14 days of cane delivery. But that requires access to working capital. Banks normally extend cash credit up to 85 per cent of the value of sugar stocks. That, at present ex-factory prices of Rs 31.5 per kg and 11.5 per cent sugar recovery, works out to Rs 308 per quintal of cane. Moreover, mills can use only about 85 per cent of this borrowed money to fund cane purchases and the rest for meeting other working expenses. It means that mills today cannot afford to pay more than Rs 262 per quintal. Farmers are better off getting this price immediately rather than not being paid at all. Politicians may earn brownie points by announcing high cane prices. But how does it help, if these only lead to unpaid dues even at the end of the season.
Not hiking the FRP is a good start; so is the move to create a four million tonnes (mt) buffer stock on which the Centre will bear the interest and storage costs. Given record estimated closing stocks of 14.5 mt for September 30, this should at least help prices from falling further when the new crushing season begins. But the Modi government should go further and push states — at least UP, Maharashtra and now Karnataka, where the BJP is in power — to implement the Rangarajan Committee formula, of paying farmers 70 per cent of the total revenues of mills from sale of sugar and primary byproducts (molasses, bagasse and press mud) as cane price. A transparent pricing formula, combined with freedom for farmers to sell to any mill sans any cane area reservation, should be the path forward.