Why it is not going to be a sweet deal for sugarcane farmers

By: |
Updated: Nov 05, 2015 11:29 AM

Akhilesh Yadav’s govt will find granting even a token increase in state advised price difficult, despite assembly elections just over a year away.

Sugarcane farmers in Uttar PradeshAkhilesh Yadav’s govt will find granting even a token increase in state advised price difficult, despite assembly elections just over a year away. (Reuters)

For three consecutive crushing seasons — 2012-13, 2013-14 and 2014-15 — Jitender Singh Hooda has been receiving an unchanged Rs 280 per quintal rate for his cane supplied to the sugar mill at Shamli in western Uttar Pradesh.

“I don’t see the price being increased even in the new 2015-16 season (October-September),” says this 48-bigha farmer from Kheri Bairagi village of Shamli tehsil.

The UP government last raised its state advised price (SAP) for normal sugarcane varieties to Rs 280 per quintal in 2012-13, from the preceding season’s Rs 240 level. The Samajwadi Party administration under Akhilesh Yadav is expected to announce the SAP for the current season within the next few days.

“There may be a token increase this time, but it doesn’t matter really,” remarks Hooda. The basis for his cynicism stems from the fact that UP mills are yet to pay even the Rs 280/quintal price for 2014-15, more than a month since the end of the season which saw them crush cane worth Rs 20,645.13 crore at the SAP. As on October 30, mills owed Rs 3,207.08 crore against this payable amount, even as crushing for the 2015-16 season is set to commence by the month-end.

Hooda hasn’t got any payment since March 11 from the Shamli mill, which crushed cane right until mid-May. He is lucky, though, compared to Arvind Choudhary, who farms 185 bighas (five bighas make an acre) in Kasampur village of Saharanpur district’s Nakur tehsil. The latter was paid by the Shermau mill of Uttam Sugar last on February 5.

Both Hooda and Choudhary have reduced their area under cane this year to 16 and 50 bighas, respectively, from last year’s corresponding levels of 35 and 90 bighas. “Ideally, we wouldn’t have grown any cane; how can you when the price has remained the same for three years and even that hasn’t been paid? But the alternatives are worse, as Pusa-1121 basmati paddy is fetching Rs 1,800 per quintal now, as against Rs 2,200-2,250 last year and Rs 4,200-4,300 the year before. In sugarcane, the payment may come at least at some point and the crop is also less prone to damage from hailstorm, flood or nilgai,” adds Hooda.

“This is the time — just before Diwali and with crushing yet to begin — when prices are supposed to peak. Instead, we are starting with low prices, which may well fall further as the season progresses,” notes Tarun Sawhney, vice chairman of Triveni Engineering & Industries, UP’s third largest sugar company after Bajaj Hindusthan and Balrampur Chini Mills.

Mills’ capacity to pay is linked to working capital finance availability from banks. Banks typically lend up to 85 per cent of the value of the sugar produced by them. 85 per cent of the sums advanced, in turn, go to finance the cost of cane, with the balance 15 per cent covering other expenses like salaries, overheads, interest, maintenance and repairs. Thus, if sugar stocks are valued at Rs 2,700 per quintal, mills can afford to pay a cane price of Rs 195 per quintal. And even this is subject to tagging agreements with banks, which have already been withdrawn for extreme loss-making concerns such as Bajaj Hindusthan, Mawana, Modi, Simbhaoli and Rana Sugars.

“Forget a higher SAP, we cannot pay even Rs 200 per quintal today,” claims Sawhney. UP farmers have so far received an average price of Rs 236.50 per quintal for cane supplied in 2014-15. However, that includes Rs 28.60 per quintal of assistance from the state government, directly credited to the bank accounts of growers. Effectively, mills paid only around Rs 208 per quintal. Even after the government’s assistance — for which mills had to provide the list of farmers, along with their bank account details and the quantity of cane supplied — the full SAP has not been disbursed.

“But for the first ever time, over Rs 2,100 crore was directly transferred by the state government to farmers’ accounts, which is a remarkable achievement,” observes Sawhney.

Interestingly, the Centre is proposing a similar direct subsidy of Rs 4.75-5.50 per quintal to cane farmers for the 2015-16 season. While the projected outgo in this case will be only Rs 1,300-1,400 crore — much lower than the amount spent by the UP government, which has also extended a higher per quintal assistance — it clearly indicates a movement towards direct benefit transfers (DBT). Such direct subsidies — unlike those on exports or creation of buffer stock on government account — are also seen as non-market-distortive and hence World Trade Organization-compliant.

Now that DBT has been shown to be workable, the industry wants it to be extended for the new sugar season as well. “The government should fill the gap between what the industry can pay, based on a transparent sugar realisation-linkage formula, and an SAP that is fair to farmers. Mills must also be given the flexibility to pay the cane price in three installments, as is the practice in Maharashtra and Gujarat,” according to Sawhney.

Either way, with Assembly elections due in early-2017, keeping sugarcane farmers happy and not allowing build-up of payment arrears will be a key challenge for Akhilesh Yadav’s government. The hope is from a recovery in sugar prices by the middle of next year, which is possible if the effects of drought lead to lower cane plantings and production in the ‘swing’ states of Maharashtra and Karnataka.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Gold prices give up Rs 52,000 per 10 gm; yellow metal plunges 7.5% from record high
2Export markets open up for rubber component makers as global manufacturers looking at suppliers outside China
3Gem, jewellery exports dip 38% in July, courtesy weak global demand on account of Covid