1. At Rs 7,060 crore, cane arrears remain too high

At Rs 7,060 crore, cane arrears remain too high

Share of Uttar Pradesh in the total cane arrears has come down to just about 50%

By: | Published: November 11, 2015 12:07 AM

Mills and co-operatives across states owed a whopping Rs 7,060 crore to farmers by October 15 for cane purchases in the last marketing year that ended September 30, according to the latest official data. Although the arrears have come down significantly from the record level of Rs 21,836 crore until April 15, as realisations from sugar sales came in, the dues are still much higher than those at this point of time for any other year.

The share of Uttar Pradesh, the traditional epicentre of the cane crisis, in the total arrears has come down to just about 50%, against those of 60-70% at this time in recent years. The state still remained the biggest defaulter of cane payments, thanks to its faulty policy of fixing exorbitantly high cane prices year after year.

However, since sugar prices crashed across producing states to even below cane costs in the last marketing year, even the payment of the fair and remunerative price (FRP) of R220 per quintal determined by the Centre for 2014-15, which is much less than the state-advised price (SAP) fixed by Uttar Pradesh, was difficult for mills and co-operatives. So even Maharashtra and Karnataka have also been facing a crisis in payment now. Farmers have been protesting for an early payment of arrears.

Though sugar prices recovered a bit in October, having hit seven-year lows earlier in the 2014-15 season due to five straight years of surplus production and an absence of adequate export opportunity following a plunge in global commodity prices, mills still continue to see losses. Consequently, Maharashtra also accounted for 18% of the country’s cane arrears and Karnataka 12%. The industry, for the first time in at least two decades, is struggling to pay even the FRP.

The Centre in June decided to extend a loan package, worth R6,000 crore, to the cash-starved sugar mills to help clear cane arrears and offered to bear a 10% interest subsidy on the loan for one year, which has somewhat contributed to the fall in arrears in recent months. However, the package failed to enthuse the industry, which termed the move an “inadequate” response to a crisis, as it didn’t solve the basic problem of excessive stocks and a lack of a linkage between the price of cane and its by-products, including sugar.

With banks refusing to give working capital loans to many mills and sugar companies continuing to incur losses, bulk of these arrears from the last season are all set to be paid from sugar sales realisation this season.

The industry has now demanded that the government set up a price stabilisation fund for cane and pay the difference between the FRP and the price of cane in accordance with the Rangarajan panel’s linkage formula. The Rangarajan panel had suggested that mills pay 70% of the prices of cane and other by-products or 75% of the prices of only sugar to farmers for cane purchases. Based on this formula, the cane price should be roughly R55 lower than even the FRP of R230 per quintal for the 2015-16 season, the industry has said.

Domestic sugar prices, meanwhile, went up in October, as production is forecast to drop to 27 million tonne in 2015-16, down almost 5% from the actual output of 28.31 million tonnes — an eight-year high — in 2014-15. Although enhanced risks to yield from a deficient monsoon in Maharashtra and Karnataka caused the drop in output, production would still beat consumption for a sixth straight year in 2015-16.

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