Saving UP’s sugar mills

Nov 19 2013, 03:50 IST
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SummaryDecontrolling molasses, blending ethanol in petrol, buying bagasse-power ... this will help, but just a bit

The major stakeholders in sugar sector, sugarcane farmers and sugar mill owners, are heading towards a crisis on the pricing of cane this year. This is happening in varying degrees across all sugarcane growing states, but most prominently in Uttar Pradesh (UP). Farmers are asking for a significant increase in cane prices as their costs of production are rising, while the mill owners are saying that they cannot afford to give even the existing prices of cane, as sugar prices are significantly lower than last year's. Both are right in their statements. But instead of an amicable solution being arrived at, the situation seems to be getting worse by the day. While the cane in the fields awaits harvesting, several mills are refusing to begin crushing unless the pricing issue is settled. The courts are coming down hard on the mill managers to clear past arrears, and making the situation even grimmer.

We need to find an appropriate answer to this problem lest the sugar sector slips into a three-year downturn, harming the farmers, mill owners, and lakhs of employees. What are the options that can be considered for a mutually agreeable settlement? It may be useful to keep a few facts in mind before exploring these options.

First, the Commission for Agricultural Costs and Prices (CACP) report on the pricing of sugarcane for the season 2013-14 had recommended a fair and remunerative price (FRP) of R210/qtl at 9.5% recovery. For a recovery of 11.3%, as in Maharashtra, this would work out to R250/qtl. CACP’s recommendations take into account the projected costs of growing cane as well as the demand-supply balance of sugar, and the likely market prices of sugar and its by-products. But in most of the states, farmers are already getting State Advised Prices (SAP) of cane which are significantly higher than this recommended FRP. In UP, for example, SAP is already at R280/qtl, and Haryana has gone ahead and recommended R300/qtl as the SAP for 2013-14. This has put an additional challenge on the UP government. In Maharashtra too, most of the mills have been paying a price for cane marginally above R250/qtl.

Second, the CACP Report has also suggested switching over to Revenue Sharing Formula with a minimum FRP. The Revenue Sharing Formula is the same as that recommended by the C Rangarajan Committee. As per that formula, the cane price should be 70% of the value of

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