Sugarcane arrears of farmers have jumped 70% in a year to a record Rs 20,000 crore as mills struggle to pay them amid a glut in the market, a development that could influence the vote in key states such as Uttar Pradesh during the upcoming general election.
The government is reluctant to raise the minimum sale price of the sweetener to the extent the mills say is necessary to help them make payments, as it walks the tightrope between protecting consumers by controlling inflation and helping farmers by increasing cash flows to the sugar sector. In Maharashtra, the state government has started proceedings to confiscate assets of millers to pay farmers their dues.
The sugar industry fears that arrears will rise to Rs 35,000 crore at the time of elections, hurting farmers, particularly in BJP-ruled Uttar Pradesh and Maharashtra, the main producers of the sweetener. In these two states, more than 25 million farmers grow 75% of India’s sugarcane, while Tamil Nadu, Karnataka, Andhra Pradesh and Telangana are among the other main producers. The cultivators are restive.
“Farmers are readying to launch an agitation demanding fast payment of their cane arrears,” said Kisan Jagriti Manch president Sudhir Panwar. “Mill owners are not fulfilling their obligations, citing a liquidity crunch. Strong protests are being witnessed in Shamli, Muzaffarnagar, Bijnor and Modinagar, which will intensify if they don’t get their dues.”
The government is unlikely to increase the floor price of sugar by more than 8% although millers are seeking a 25% increase over the current minimum sale price of Rs 29 per kg. Top producer Uttar Pradesh has urged the Centre to increase the minimum support price (MSP). On February 7, it wrote to the central government suggesting that the MSP be increased to Rs 32.50 per kg.
To be sure, the government has sought to assuage agrarian distress by announcing an income transfer scheme in the interim budget for some farmers. But the Centre’s sugar directorate is reluctant to increase the price much amid abundant supply.
“There is no shortage of sugar. There has been a long-drawn demand from industry to raise MSP by Rs 5-6 a kg for liquidity. But even if we increase the MSP to help them clear the mounting arrears, it would not be beyond Rs 1-2 per kg,” said a sugar directorate official.
Jai Kisan Andolan national convener Avik Saha blamed government policies for the situation. “Though this government largely inherited the problems of the sugarcane industry, it failed to offer pragmatic solutions to those problems,” Saha said. “It did not have a clue about how to solve the problem and ended up increasing it. Sugar was allowed to be imported, when we had overproduction.”
In June last year, the government fixed the minimum mill gate price at Rs 29 a kg and said it may be revised if there is a change in fair remunerative price (FRP).
Fair remunerative price (FRP) is the minimum price that the government determines every year for purchase of sugarcane from farmers, except in Uttar Pradesh, Tamil Nadu and Punjab, where they get the state advised price (SAP).
In July last year, the government increased the FRP by Rs 20 a quintal to Rs 275, prompting millers to demand a higher floor price. The Uttar Pradesh government, however, kept SAP unchanged at Rs 315 a quintal.
Any rise in sugar prices may upset consumers, said the sugar directorate official cited above.
“Raising prices by Rs 5-6 a kg would not pinch the public much,” said ISMA director general Abinash Verma. “On the other hand, it will help industry to have extra liquidity of Rs 500-600 per quintal on sugar sale. It will give an additional Rs 20,000 crore from current stock and further production, which can be used to clear cane farmers’ dues which is increasing by the day.”
This year the sugar season started in October with stocks at a 10-year high of 10.72 million tonnes. Sugar availability is likely to be 41.42 million tonnes while demand is 26 million tonnes. The estimated production of 30.7 million tonnes makes the situation more precarious for the industry.
“Even if we assume that we are able to export 30 lakh tonnes sugar in this tight market, the opening balance for the next season would be 124 lakh tonnes–even more than this year’s balance,” Varma said.
ICRA said in a report that the sugar MSP in Maharashtra, where sugarcane is purchased at Rs 2,750 a tonne, should actually be around Rs 32,000 a tonne while in Uttar Pradesh where cane is sold at Rs 3,150 a tonne, the MSP should be Rs 34,000 a tonne.
“We have considered landed cost of cane, recovery, cost of production and contribution margin while calculating the MSP,” said Sabyasachi Majumdar, senior vice president, ICRA.