No sweet tidings

The Centre's bailout package announced for the sugarcane-growing belt of Western Uttar Pradesh soon after the huge loss in Kairana by-elections would neither bail out the farmer, the industry nor the BJP government. The Centre's fresh package of nearly Rs 8,000 crore falls short of the expectations of the sugar sector. Sugarcane farmers in the region are among the worst hit by pending dues, mainly because of faulty policy designs based on populist agendas rather than sound economic principles.

The sugar industry too is grappling with failing prices and facing an inability to clear payment arrears to cane farmers. The Cabinet Committee on Economic Affairs (CCEA) approved the package as an intervention package to address the immediate liquidity problems of the industry. It also fixed the minimum selling price (MSP) of white (refined) sugar at Rs 29 a kg.

Also announced was creation of a bugger stock of three million tonnes for one year, at an estimated expenditure of RS 1,175 crore. Reimbursement under the relief package would be on a quarterly basis, with the money to be directly credited into farmers accounts on behalf of mills, against their cane price dues.

Uttar Pradesh had requested the Centre to fix an MSP of white sugar at Rs 34 a kg. Any price below the cost of production in Uttar Pradesh of Rs 35-Rs 36 is a loss for sugar mills.

The current package would not help much to curtail the Rs 13,000 crore cane payment arrears in UP. The cost of sugarcane production is Rs 1.5 - Rs 2 a kg higher in Maharashtra than in UP. Hence, this is a medium-term measure and would not solve immediate problems for the industry. In fact, the big problem is expected bumper production for the next season on which the government should have announced some measures.

There is also criticism on imposing stock holding limits on mills which tantamounts to control on sugar sales, as it is not the right way to move into the future. Creation of buffer stocks of three million tonnes will reduce some surplus sugar from the market, though only for a year, and will improve market sentiment to support domestic prices.

The real issue is that there is no idea or proposal on rationalisation of the cane pricing policy, which is actually the main reason for all the problems of the industry today. Maharashtra has ended its season with the highest ever sugar production at 107 lakh tonnes. However, the failing prices have led to political uproar in the State where sugar prices are one of the deciding factors in the election outcome in at least 138 assembly constituencies in Western Maharashtra, Marathwada and Vidarbha.

As farmers are stakeholders in every cooperative sugar mill, the low sugar prices affect the profit of the mill and subsequently the farmers' dividend. The mills have failed to pay the minimal fair and remunerative price to farmers and owed Rs 22,000 crore to them till April 30. Unless the Centre looks at vertical integration and links the price to sugar and its byproducts, the problem won't be addressed.