Recently, Uttar Pradesh Chief Minister Akhilesh Yadav said that private companies were not eager to set up industries in the State because the Samajwadi Party Government was not giving them adequate sweeteners. This he said about companies who had refused to set up units in Uttar Pradesh under the private-public-partnership model, particularly in the IT and the surface transport sectors. But his words hold true for the sugar industry of the State, as private millers have refused to start operations saying the sugarcane price announced by the Government is not viable.
The Indian Sugar Mills Association, a conglomerate of the private sugar mills, claims that it is in no position to pay the sugarcane price the Government has announced, as the sugar sector in the country is already in red. The millers have made it clear — either the Government gives them subsidy or announces a cane price that is compatible with the global market.
The crushing of sugarcane normally starts in end October. Mr Yadav had asked the mills to start operation by November 25. The purchase price of this politically-sensitive crop is controlled by both the Centre and the State Governments. The price announced by the Union Government is usually less than what the Uttar Pradesh Government offers. While announcing the cane price for this crushing season the Samajwadi Party regime retained last year's price of Rs 290 per quintal for the early maturing variety, Rs 280 per quintal for general variety and Rs 270 per quintal for the rejected variety. By retaining last year's price the Samajwadi Party Government has risked antagonising sugar cane farmers in an election period, as the farmers were expecting an increase of Rs 15-20 per quintal.
Uttar Pradesh, one of the biggest sugar producing States of India, has 125 mills — of which 109 are in private sector. Sugarcane crop covers about 22 lakh hectares of area, involving over four million farmers who grow about 135-140 million tonnes of cane. The State produces around 75 lakh tonnes of sugar, contributing for around 30 per cent of the country's sugar production.
The millers argue that the State-administered price has increased by 70 per cent in the last three years, whereas the sugar prices have gone up by just eight per cent. Because of this abysmal ratio, the sugar industry in Uttar Pradesh lost about Rs 4,000 crore in 2012-2013 alone. They predict an additional unpaid cane price arrears of Rs 2,400 crore from 2012-13 to be cleared next year and with the lower paying capacity now, the announcement of a similar unviable cane price as last year will only lead to cane price arrears to cross Rs 1,2000-Rs 1,3000 crore in March-April 2014. They say that Government should fix price as per the recommendations of the Rangarajan panel that has advocated rationalisation of cane price vis-à-vis sugar.
The country has 88 lakh tonnes of surplus sugar as on October 1 and it will end up increasing its carry forward sugar stocks to over 103 lakh tonnes by end of September 2014. This will block cash flows worth Rs 30,000 crore during 2013-2014 sugar season, impacting the sugar industry's capacity to pay the farmers.
Private millers have made it clear that the SAP is unviable and much beyond the paying capacity of the mills of Uttar Pradesh. They have stated that at these prices, it will be extremely difficult to convince the banks to extend loans or to ensure that mills start their cane crushing in 2013-14. The mills say that they are willing to pay Rs 225 per quintal, and not more than that.
The Uttar Pradesh Government knows that it is not possible for them accept the base price announced by the sugar millers. In Uttar Pradesh cane is sown in 44 districts and it is Rs 27,000 crore business. Of this almost Rs 22,000 crore goes to the sugar mills while the rest goes to the jaggery units.
This ongoing impasse has put the farmers in a bind. In western Uttar Pradesh, the farmers sow wheat after sugarcane. The sowing is complete by the middle of December. With harvesting of sugarcane yet to start, farmers cannot start the sowing of wheat — thus the entire crop cycle has gone haywire. With no option left the farmers might opt for distress-sale, offloading their produce to small jaggery units at a very low price.
No popular Government wants this. Mr Yadav, who also holds the sugar portfolio, is going hammer and tongs to strike a deal and ensure that the millers begin production, because he knows that if the Samajwadi Party fails to make private millers tow the line, the political fallout would be immense in the next lok Sabha election. The opposition parties have already begun making discerning noises. The Bharatiya Janata Party and the Rashtriya lok Dal have dubbed the Samajwadi Party as “anti-farmer” and asked the State Government to increase the sugar price to Rs 300 per quintal. The Bharatiya Kisan Union leaders too met the Chief Minister and demanded an increase in cane price; they threatened to torch their crop if the demand was not met.
The onus is now on the Chief Minister to strike a balance. It is now up to him to offer a ‘sweetener’ that could please mills and farmers alike. The earlier he can do this the better it would be for his Government and his party.