With sugar SAP on the cards, UP govt caught in crosshairs

By: |
August 27, 2020 3:05 AM

“But the counter narrative here is that the industry still owes approximately Rs 11,000 crore to farmers for the 2019-20 season and its own operating costs will also increase due to the hike in fuel costs and the reduction in power rates effected by the UPERC.

The SAP in Uttar Pradesh is usually higher than the Centre’s FRP.The SAP in Uttar Pradesh is usually higher than the Centre’s FRP.

With the Centre deciding to increase the minimum price sugar mills pay to sugarcane growers, also known as Fair and Remunerative Price (FRP), by Rs 10 to Rs 285 per quintal for the next marketing year starting October 2020, all eyes are now set on Uttar Pradesh, the country’s largest sugar producing state, which fixes its own sugarcane price called state advisory price (SAP).

The SAP in Uttar Pradesh is usually higher than the Centre’s FRP. Fraught as it is with politics, the government of the day does a fine balancing act between the farmers’ demands and the millers’ paying capacity.

For the current 2019-20 marketing year, the Uttar Pradesh government had fixed sugarcane SAP at Rs 315 per quintal for the common variety, which accounts for almost half of the total sugarcane produce. The prices for early variety and rejected varieties of cane were Rs 325 a quintal and Rs 310 a quintal, respectively.

The state government had kept the sugarcane price unchanged for the last two years. So technically the SAP was last increased by Rs 10 per quintal in 2017, soon after the Yogi Adityanath government came to power.

According to industry insiders, the pressure on the state government to increase the SAP for the 2020-21 season is immense on two counts. Firstly, because the Centre has increased the FRP for next year and secondly because the Centre has recommended an increase in the minimum selling price (MSP) of sugar by Rs 2 to Rs 33 per kg.

Talking to FE on condition of anonymity, an industry veteran said that the issue is intricate. “The SAP in UP is a rather complex matrix, fraught with a lot of speculation, not only because it takes into considerations facts such as the farmers’ benefits and loss and the paying capacity of the industry, but also because it tends to be a major political decision that takes into account things like elections and the repercussions SAP can have on its outcomes. But if we just take into account the fact that FRP has been increased and the MSP for sugar has also been hiked by Rs 2, we will conclude that the SAP, too, should increase, given the fact that the sugar mills’ revenue will also increase.

“But the counter narrative here is that the industry still owes approximately Rs 11,000 crore to farmers for the 2019-20 season and its own operating costs will also increase due to the hike in fuel costs and the reduction in power rates effected by the UPERC.

“If the hike in SAP is very high, it would wipe out the benefits of the MSP of sugar and put undue pressure on the mills, which would then be forced to carry over the dues to the next season. This would only create new arrears and the vicious cycle of cane dues will never end,” he said, adding that even if the government decides to hike the SAP, the decision should be a well-researched and thought out plan and should deliberate on the long term impact on both the farmers as well as the industry.

“Usually, the government of the day looks at political optics while deciding on SAP. The pressure is more this time as both the governments at the Centre and the state are of the BJP. The state government cannot afford to look “farmer-unfriendly” while the Centre is trying to project a farmer-friendly image. The entire game here is how well the state government absorbs the pressure and does a fine balancing act,” said another industry insider, adding that the state government will also have to consider the fact that the state will go the polls in 2023, which would warrant another hike in SAP in the 2021-22 season. “The government will perforce have to hike the SAP for the 2021-22 season. If that is the case, it should tread cautiously while deciding on the coming season’s SAP,” he said.

It may be mentioned that while the farmers in the state demand a higher price every year, a Niti Aayog task force has recently laid a strong emphasis on linking sugarcane prices to sugar rates to keep the industry in sound financial health. It has also recommended that states which announce their own SAP should be urged to desist from doing so unless they are willing to bear the additional costs of SAP upon themselves and not forcing the mills to bear the load of sugarcane price above FRP.

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