Low sugar price crushes farmers as well as mills

Pune | Updated: November 6, 2014 5:30:39 AM

Dealing with restive cane growers like Vijay Chavan will probably be the first major challenge for Devendra Fadnavis.

Standing in his 10-acre field where the sugarcane crop is ready to be crushed, Vijay Chavan contemplates the future with trepidation.

In the last sugar year (October 2013-September 2014), Chavan, a farmer from Arvi village in Satara’s Phaltan taluka, got R225 per quintal as the first instalment and another R25 as the second and final instalment for the cane he supplied to the Shriram Sahakari Sakhar Karkhana mill.

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“We were hoping the factory would give us R250 as the first instalment and R300 as the final price,” he said.
But this sugar year, Chavan fears worse. “When I talk to people in the factory, I get the feeling this time we will be offered R200 per quintal or so. If that happens, farmers will have no option but to launch an agitation,” he said.

Price squeeze
Dealing with restive cane growers like Vijay Chavan will probably be the first major challenge that Devendra Fadnavis will face as chief minister of Maharashtra. In Uttar Pradesh too, chief minister Akhilesh Yadav is likely to feel the heat as sugar mills start to crush for the new season.

Ex-factory prices of sugar are around R27 per kg in Maharashtra and R28 in UP today, lower than the already low levels of 2013-14. It is a reflection of global prices: On Tuesday, the benchmark March raw sugar futures contract at the Intercontinental Exchange in New York closed at 15.68 cents a pound, compared with 18.32 cents a year ago, and the peak of 36.08 cents reached in February 2011.

In 2013-14, India shipped out about 2.2 million tonnes of its 24.3 million tonnes production. But at 15.68 cents a pound — or R21.22 a kg — it is unfeasible to export raw sugar out of Maharashtra, even assuming the Centre restores the R3.30 per kg “incentive” that was given in the 2013-14 season.

Worse than last year
The current prices not only rule out exports but more important politically, they make it impossible for mills to pay farmers even what they got last year.

“At last year’s cane prices, the average production cost of sugar works out to Rs 35 per kg in UP and Rs 30 per kg in Maharashtra where recoveries are 2 percentage points higher. We can pay up to 75% of the average sugar realisation, which means a cane price of Rs 200-210 per quintal,” said Abinash Verma, director general of the Indian Sugar Mills Association.

The possibility of a reduction in cane prices to align them with sugar realisations — which has not happened so far (see table) — is something that even growers seem reconciled to.

“The factory management has informed us that since the production cost of sugar is now way above the selling price, there is no option but to pay less for the cane we are supplying,” Chavan said.

In UP, a cane price reduction of sorts has already taken place in the form of payment arrears: Mills in the state owe farmers some Rs 2,100 crore for cane that was procured in the last (2013-14) season.

In Maharashtra, factories decide the first instalment price of cane after consultation with farmer groups. This rate has always been the fair and remunerative price (FRP) fixed by the Centre. Sugar mills say that even paying the FRP — set at Rs 220 per quintal for 2014-15 — would present a challenge this time.

Vijaysinh Mohite Patil, chairman of the Maharashtra State Cooperative Sugar Factories Federation and NCP MP from Madha, said that mills are in a bad shape and “will require government help to pay the FRP”.

Vishal Dalvi, who supplies cane to the Rayat cooperative factory near Karad in Satara, said that the state government should intervene to ensure farmers receive a justifiable price for cane and the Centre take all steps to prevent any sugar imports.

By Partha Sarathi Biswas & Atikh Rashid
(With Harish Damodaran in New Delhi)

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