Cane payment to farmers in electorally-sensitive Uttar Pradesh — the epicentre of the sugar sector crisis — picked up pace since the poll dates were announced by the Election Commission but the arrears still remain stubbornly high.
Cane payment to farmers in electorally-sensitive Uttar Pradesh — the epicentre of the sugar sector crisis — picked up pace since the poll dates were announced by the Election Commission but the arrears still remain stubbornly high. This signals that notwithstanding the government’s bid to enable mills to clear the dues in the election year through subsidised loans and other measures, in the absence of structural reforms like rationalisation of cane prices, arrears will continue to pile up year after year.
Mills and cooperatives in UP paid farmers around `8,500 crore between March 11 (the day after election dates were announced) and May 3, compared with `4,500 crore a year before, sources told FE. Still, they were able to pay just 64.8% of their dues as of May 3 this year, against 64.7% a year before, as payments were slower in initial months of the current marketing year that started from October 2018.
In absolute term, cane arrears in UP stood uncomfortably high at `10,500 crore as of May 3, compared with `11,000 crore a year before and higher than `9,000 crore as of March 11 this year. Usually, UP alone makes up for over 60% of the country’s cane arrears.
Mills had cleared arrears fast in initial months of the last (2017-18) marketing year before slowing down payments from March 2018 onward due to a crash in domestic sugar prices.
Cane crushing started around mid-November 2018 in UP and mills are still purchasing the raw material, although the peak crushing season was over by end-April.
Apart from the incentives announced by the government, the Centre’s directive in February to raise the minimum sale price of sugar to `31 per kg from `29 earlier increased realisation of mills and helped them clear arrears at a faster pace since March, said the sources. Larger exports of sugar (by states like Maharashtra) and consequent easing of domestic surplus, too, propped up domestic prices. Even the UP government’s announcement in October 2018 to offer cheaper loans to mills helped some of them, they added.
Last year, the BJP’s loss in the Kairana bypoll was attributed mainly to the plight of farmers due to delayed payment for cane supplies. UP, the country’s most populous state, accounts for 80 of the 543 Lok Sabha constituencies that are witnessing polls and woes of cane farmers remain a crucial poll plank in many of these seats. As many as 13 constituencies are going to polls in the state in the last phase of the election on May 19.
On February 28, the government also announced soft loans worth `10,540 crore at an interest subsidy of 7% for sugar mills to help them clear cane dues. One of the sources said mills in UP may have already been provided such loans of around `1,700-1,800 crore. This also helped them clear dues.
In 2018, a sharp fall in sugar prices prompted the government to announce a raft of measures to improve mill’s ability to clear cane dues, including the imposition of a minimum sale price of sugar, subsidised loans for creating or expanding ethanol capacity. However, since the revised minimum sale price of `31 per kg still doesn’t offset the wide gap between the cost (`36-37 per kg) and earnings of sugar mills due to exorbitantly high cane prices mandated by the Central and state governments, they will continue to incur losses, causing cane arrears to soar.