India Today - - INSIDE - By M.G. Arun

A glut in pro­duc­tion hits prices, wors­ens farm­ers’ woes and up­ends the po­lit­i­cal for­tunes of par­ties

SURENDRA SINGH, 40, A FARMER with 15 bighas of land (four bighas com­prise roughly an acre) in Malakpur vil­lage of Baghpat district in west­ern Ut­tar Pradesh, is dis­traught. He uses most of his land to grow sug­ar­cane, pro­duc­ing 600 quin­tals a year, and earn­ing close to Rs 2 lakh a year. How­ever, so far this year, he has got only half the pay­ment from the Malakpur Su­gar Mill, to whom he sup­plies his pro­duce. Ex­cess su­gar pro­duc­tion has de­pressed su­gar prices, hit­ting su­gar mill rev­enues. Singh, a fa­ther of two school­go­ing chil­dren, has used most of the money to re­pay his debt, leav­ing him lit­tle for his house­hold. “Schools will re­open on July 2, and I am left with no money to pay my chil­dren’s fees,” he laments. He has taken up the is­sue with the deputy sug­ar­cane com­mis­sioner in the re­gion, who has promised “strict ac­tion” if Singh’s dues aren’t cleared in two weeks. That is hardly a con­so­la­tion, as Singh knows only too well that the su­gar mills hold im­mense clout among lo­cal au­thor­i­ties and he may have a long wait for his pay­ment.

And it’s not just one farmer in one state. Across


the coun­try, su­gar mills have with­held a to­tal of as much as Rs 22,000 crore in pay­ments due to farm­ers. In­dia is the sec­ond largest sug­ar­cane cul­ti­va­tor in the world, next to Brazil, with 50 lakh hectares un­der sug­ar­cane cul­ti­va­tion (one hectare equals 2.5 acres). With a 9 per cent in­crease in land un­der sug­ar­cane cul­ti­va­tion in 2017 com­pared to the pre­vi­ous year and im­proved pro­duc­tiv­ity, su­gar pro­duc­tion rose 48 per cent in 2017-18 (su­gar sea­son is from Oc­to­ber to Septem­ber, and the crop needs hot and hu­mid weather, with 75-150 cm rain­fall). Around 530 su­gar mills in In­dia have pro­duced 32 mil­lion tonnes (mt) of su­gar, while the do­mes­tic de­mand is just 25 mt. That leaves the coun­try with a sur­plus of 7 mt of su­gar, pulling down su­gar prices. Prices of su­gar have fallen sharply from Rs 37 per kilo­gram on an av­er­age in 2017 to Rs 26 in June 2018. With low prices hit­ting su­gar mills’ rev­enues, they say they are in no po­si­tion to pay off farm­ers’ ar­rears any­time soon. Low prices and farm­ers’ woes pose a ma­jor headache for cen­tral and state gov­ern­ments— the cri­sis was the sub­ject of heated de­bate in the by­elec­tions to a few Lok Sabha and state assem­bly seats held in May. In a much-dis­cussed elec­tion de­ba­cle, the rul­ing BJP lost the par­lia­men­tary seat of Kairana in west­ern UP’s sug­ar­cane belt to the Rashtriya Lok Dal by a mar­gin of over 44,000 votes.


Over 4 mil­lion ru­ral house­holds are en­gaged in farm­ing sug­ar­cane in UP, which pro­duced 12 mt of su­gar this year— more than any other state. Sug­ar­cane prices are fixed by state gov­ern­ments (state ad­vi­sory prices or SAP). The UP gov­ern­ment in­creased prices for the 2017-18 crush­ing sea­son by Rs 10 per quin­tal for dif­fer­ent kinds: Rs 315 per quin­tal for the com­mon va­ri­ety, Rs 325 and Rs 310 per quin­tal, re­spec­tively, for the early ma­tur­ing and un­suit­able cane va­ri­ety. Farm­ers were also promised they would be paid by su­gar mills in a sin­gle in­stal­ment, and within 14 days of the sale of the sug­ar­cane. But this was not to be. Ex­plain­ing this, Giri­raj Ku­mar, man­ager of Mawana Su­gar Mill in Meerut, says, “When the gov­ern­ment fixed SAP, su­gar price in the mar­ket was more than Rs 3,200 a quin­tal (Rs 32 a kg) but in May this year, it dropped to Rs 2,600. This is the main rea­son for the de­lay in

pay­ment to farm­ers.” Sug­ar­cane pro­duc­tion in UP this year is 170 mt, an all-time record. Ac­cord­ing to the UP cane de­vel­op­ment and su­gar in­dus­try de­part­ment, 119 su­gar mills, both gov­ern­ment and pri­vate, are en­gaged in crush­ing in the 2017-18 sea­son. Of these, 43 have crushed one crore quin­tals of sug­ar­cane each. Up to June 5, su­gar mills in UP owed farm­ers as much as Rs 12,585 crore.

Not all farm­ers get to sell their pro­duce through co­op­er­a­tive so­ci­eties, which send cane to the dif­fer­ent mills. They then have to sell in the open mar­ket, where they get a much lower price. “Farm­ers spend Rs 220 on av­er­age to pro­duce a quin­tal of sug­ar­cane,” says Har­nam Singh Verma, pres­i­dent of the Bharatiya Kisan Union, Awadh re­gion. In the open mar­ket, they get only Rs 240 per quin­tal, Rs 85 lower than what the mills pay them. Satya­pal Singh, BJP MP from Baghpat and Union min­is­ter of state for hu­man re­source de­vel­op­ment, blames the pre­vi­ous state gov­ern­ment. “Some su­gar mill own­ers op­er­ate like a gang of the pre­vi­ous gov­ern­ment. But our gov­ern­ment is try­ing its best to clear all dues of the farm­ers by June-end,” he says. On June 29, Prime Min­is­ter Naren­dra Modi met sug­ar­cane farm­ers from five states and as­sured them of a sta­ble mech­a­nism to en­sure timely pay­ment.

In Ma­ha­rash­tra, the sec­ond-largest su­gar pro­ducer with a record 10.7 mt of su­gar pro­duc­tion this sea­son, the fall­ing prices have led to a po­lit­i­cal up­roar. Low su­gar prices can be­come an elec­tion is­sue in at least 138 assem­bly con­stituen­cies in the re­gions of west­ern Ma­ha­rash­tra, Marath­wada and Vi­darbha as the state goes to polls in Septem­ber 2019. Af­ter the slump in su­gar prices, only 57 out of 118 mills have paid their en­tire dues to farm­ers.

MILL OWN­ERS SAY they are in no po­si­tion to pay farm­ers as they are get­ting prices far lower than the cost of su­gar pro­duc­tion. Ac­cord­ing to Abi­nash Verma, direc­tor gen­eral of the In­dian Su­gar Mills As­so­ci­a­tion (ISMA), mills in­cur Rs 35 a kilo as cost of pro­duc­tion. “Mills should get Rs 35 at the farm gate (to be vi­able), over and above the trans­port charges. Against this, prices have fallen to al­most Rs 25 a month back,” says Verma. “If we were able to sell the prod­uct in the mar­ket (at higher prices), we’d have been able to pay farm­ers.” In 2017-18, shares of su­gar com­pa­nies, in­clud­ing mar­ket leader Ba­jaj Hin­dusthan, Simb­haoli Su­gar, Mawana Su­gars and Dwarikesh Su­gar, col­lec­tively fell by over 75 per cent due to the de­pressed su­gar prices.


Sens­ing the dis­quiet in the in­dus­try, the Cen­tre an­nounced a Rs 7,000 crore pack­age for the sec­tor in June, which in­cluded mea­sures to ad­dress the funds crunch of su­gar mills and help them re­pay farm­ers’ ar­rears. For in­stance, the min­i­mum do­mes­tic sell­ing price of white or re­fined su­gar has been fixed at the mill gate at Rs 29 per kg initi-

ally, open to fu­ture re­vi­sions. A buf­fer stock of 3 mt a year will be cre­ated at an ex­pen­di­ture of Rs 1,175 crore, which would help ab­sorb part of the su­gar sur­plus. Dis­tillery ca­pac­ity would be aug­mented through upgra­da­tion and new fa­cil­i­ties, where the gov­ern­ment will bear a max­i­mum in­ter­est sub­sidy of Rs 1,332 crore over five years on bank loans of Rs 4,440 crore. The loans are to be sanc­tioned over three years based on a De­part­ment of Food and Pub­lic Dis­tri­bu­tion scheme.

SOME EX­PERTS HAVE picked holes in the gov­ern­ment’s pack­age, say­ing that de­spite the promised funds, the ac­tual ben­e­fits will be mod­est. “If the gov­ern­ment is in­clud­ing a loan of Rs 4,500 crore, which I have to take and re­turn to the banks, it can­not be a fi­nan­cial in­cen­tive or as­sis­tance,” says an ex­pert, not want­ing to be named. More­over, sub­sidy on the in­ter­est bur­den will be a mere Rs 650 crore, tak­ing the ac­tual pack­age to around Rs 3,500 crore. “There is a mis­un­der­stand­ing among the farm­ers. They say, ‘you are get­ting a pack­age of Rs 8,000 crore, but you are not pass­ing it on to us’,” says a mill owner.

For­mer Union agriculture min­is­ter and Na­tion­al­ist Congress Party leader Sharad Pawar has also joined the de­bate. “The bailout pack­age ini­tially pub­lished to be Rs 8,500 crore and sub­se­quently men­tioned as Rs 7,000 crore... has cre­ated am­bi­gu­ity,” he wrote in a let­ter to Prime Min­is­ter Naren­dra Modi in June. “If one goes by the net fi­nan­cial outgo on each of the de­ci­sions, the scheme for as­sis­tance to su­gar mills by way of in­cen­tive on sug­ar­cane is

Rs 1,540 crore, cre­ation of buf­fer stock of 30 lakh tonnes is Rs 1,175 crore and in­ter­est sub­ven­tion on aug­ment­ing ethanol ca­pac­ity is Rs 1,332 crore— mak­ing the to­tal Rs 4,047 crore.” Mill own­ers ar­gue this is in­ad­e­quate. They also have no as­sur­ance of im­me­di­ate re­lief. “The ear­li­est we can get re­lief is in Oc­to­ber 2018 to July 2019,” says Verma.

To add to the dis­tress, global su­gar prices are de­pressed, with ex­porters get­ting as lit­tle as Rs 19 a kg. With a big su­gar sur­plus ex­pected next year too, the in­dus­try is star­ing at more pain, which could last for at least 18 months. More­over, the gov­ern­ment has rein­tro­duced the monthly sales quota sys­tem that had been given up in April 2013, which puts a cap on the quan­tity of su­gar that can be sold in the mar­ket. “What is left for su­gar pro­duc­ers to in­no­vate, in­vest or be­come ef­fi­cient? Con­sumers now will have no choice in terms of qual­ity of su­gar,” Verma adds, cau­tion­ing that with a dearth of work­ing cap­i­tal, a num­ber of su­gar mills may not be in a po­si­tion to start op­er­a­tions in the next sea­son.


A Crisil re­port says that the bailout pack­age, though wellintended, does noth­ing to ad­dress the struc­tural is­sues that plague the in­dus­try, the most acute be­ing non-link­age of sug­ar­cane prices to end-prod­uct re­al­i­sa­tions. Cre­at­ing a buf­fer stock and fix­ing a min­i­mum ex-fac­tory price for su­gar will help im­prove the cash flows of cor­po­rate mills to the ex­tent of Rs 3,500-4,000 crore or Rs 9,100 crore for the in­dus­try over the next one year, which would only ac­count for around 40 per cent of the cur­rent cane ar­rears, it adds. ‘Wor­ry­ingly, with the sup­ply sur­plus sit­u­a­tion an­tic­i­pated to con­tinue in 2019, a fur­ther build-up in ar­rears can­not be ruled out,’ the re­port warns. More­over, the of­fer of fi­nan­cial sup­port to mills for set­ting up dis­tillery ca­pac­ity is un­likely to find many tak­ers, given the fi­nan­cial sit­u­a­tion of the in­dus­try.

Mill own­ers say the so­lu­tion for the cur­rent predica­ment is find­ing an ex­port mar­ket for su­gar, us­ing chan­nels such as the state trad­ing cor­po­ra­tions. Ex­ports of su­gar this year, chiefly to West Asia, East African coun­tries and Sri Lanka, have been not more than 1 lakh tonnes. “Our money is stuck in in­ven­tory and we can­not ex­port since we are un­com­pet­i­tive in the global mar­ket,” says Verma. This is be­cause mill own­ers have to pay a high price for procur­ing sug­ar­cane in In­dia (around Rs 3,000 a tonne, com­pared to Rs 1,700 in Brazil). “In Brazil, cane prices are in tan­dem with the rev­enue re­alised from su­gar, un­like in In­dia, where the gov­ern­ment fixes it. That’s why we’ve been telling the gov­ern­ment to get out of the busi­ness of fix­ing sug­ar­cane prices,” says Verma. Even if the gov­ern­ment wanted to fix the min­i­mum sell­ing price of su­gar, they should have fixed it at the level of the mills’ cost of pro­duc­tion, not at a price the gov­ern­ment’s dis­cov­ered. “Even the Ran­gara­jan com­mit­tee rec­om­mended Rs 35.28 and that has been men­tioned by the food min­istry in their cab­i­net note.” Harsh­ward­han Patil, chair­man of the In­da­pur Co­op­er­a­tive Su­gar Mill near Pune and a Congress leader, says the Cen­tre’s pol­icy of al­low­ing only 20 per cent of su­gar to be ex­ported but al­low­ing im­ports would im­pose a loss of Rs 30,000 crore on do­mes­tic sug­ar­cane pro­duc­ers. “The loss in Ma­ha­rash­tra it­self would be around Rs 3,000 crore,” he says. But state co­op­er­a­tives min­is­ter Sub­hash Desh­mukh in­sists the cri­sis is tem­po­rary.

Clearly, there are no short-term so­lu­tions for the in­dus­try, since In­dia has be­come a sur­plus su­gar pro­ducer. Hik­ing su­gar prices ar­ti­fi­cially will not cure the dis­ease, only man­age the symp­toms. A co­or­di­nated Cen­tre-states ef­fort to boost ex­ports and help the in­dus­try be more com­pet­i­tive in the global mar­ket can help the sec­tor beat its present predica­ment.



PROB­LEM OF PLENTY Farm­ers with their cane at the Nat­u­ral Su­gar Fac­tory in Latur in March 2018

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