Why central government schemes failed to fix the crisis in sugar sector
By the end of March, sugar mills in the state had reported cane dues of over Rs 4,600 crore, the highest amount the mills have ever owed to farmers. As the crushing season enters its last leg, the central government and the sugar mills are still trying to figure out how to pay cane farmers their dues.
The mills owe farmers cane dues of over Rs 4,600 crore.
As the country heads towards another Lok Sabha elections, and the talk all over Maharashtra is about politics and candidates, the sugar sector in the state is in the throes of its worst crisis in decades. At the epicentre of the state’s sugar sector, everyone seems to be waiting desperately for something — cane farmers are waiting to be paid and sugar mills are waiting for prices to go up.
By the end of March, sugar mills in the state had reported cane dues of over Rs 4,600 crore, the highest amount the mills have ever owed to farmers. As the crushing season enters its last leg, the central government and the sugar mills are still trying to figure out how to pay cane farmers their dues.
The low sugar prices this season has thrown the payment model between farmers, who grow the sugarcane and sell it, and the mills that buy the cane and use it to manufacture sugar, out of balance. Excess production of sugar two years in a row — Maharashtra had produced 107 lakh tonnes (lt) of sugar last season, the highest-ever recorded in the state, and this year saw a bumper production — dented prices considerably.
As representatives of the sugar industry sought government measures to arrest the falling prices, the Centre stepped in and tried to fix the situation by setting the minimum selling price (MSP) of sugar at Rs 2,900 per quintal, and then raising it to Rs 3,100 per quintal later.
In September last year, an export target of 50 lt and a Rs 1,300-crore transport subsidy for exports was announced, in a bid to ensure higher export of the commodity that was in excess in domestic markets. The government also asked the mills to hold a buffer stock of 30 lt, and announced a Rs 4,500-crore interest subvention for mills that invest in production of Ethanol.
The Centre’s initiatives, however, have received lukewarm response from millers, who believe that while these may reap some benefits in the long-run, they needed an immediate way out of their problems. While an incentive for Ethanol production was certainly welcome, it hardly solved the much more pressing problem of not having enough money to pay the fair and remunerative price (FRP) to farmers.
The introduction of a quota system for the mills, to restrict the amount of sugar that enters the market, has also not had the desired effect of pushing sugar prices up. Most mills have continued selling sugar at the mandated Rs 2,900 per quintal price and claimed that the higher MSP has hit their sales. Millers, in fact, have blamed traders for interfering in the process and cornering the market.
Before the hike in MSP, as rumours about it started doing the rounds, local traders went on a purchasing spree to hoard sugar. Once the MSP was actually increased, they started releasing the sugar in their stock, and the sufficient availability of sugar stopped prices from rising further.
The many measures to boost export of sugar and push the product out of the market also haven’t had much of an impact, with red tape in the export process being the biggest roadblock for mills that do want to export their product.
At the beginning of their crushing operations, mills ‘pledge’ their sugar stock with banks in lieu of loans to pay farmers and generate working capital for their operations. Banks deduct the pledge amount from the money earned from the sugar sales, and release the remaining sugar. A situation called short margin arises when the selling price is below the valuation of sugar, as decided by the banks, and mills have to pay the bridge amount before the sugar is released.
This season, while international sugar prices remained in the range of Rs 2,100-2,200 per quintal, the sugar valuation by banks was at a higher rate of Rs 3,000-3,100 per quintal. As banks insisted that the mills pay the bridge amount before releasing the sugar stock, the Maharashtra State Cooperative Bank introduced a loan to help the mills pay the amount. But most mills are wary of availing the loan, which has a 12 per cent interest rate. The central government’s response to this fresh crisis was to point out that they had already provided a transport subsidy, but sugar mills can hardly export a product that they have pledged with the banks and are unable to retrieve.
When these measures failed to have any visible impact on the crisis-hit sector, the Centre last month announced a soft loan scheme to help the mills clear their dues. But most mills have already exhausted their credit limit and banks are wary of extending further credit to them. As a series of unfortunate circumstances pushes the cane dues up to thousands of crores, the issue is bound to affect the way farmers and other stakeholders of the sugar sector choose to vote in this Lok Sabha elections.
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