Prime Minister’s Economic Advisory Council chairman C Rangarajan, who had last year recommended complete decontrol of the sugar sector, may review his panel’s proposed formula of revenue sharing between mills and farmers for cane supplies should producing states so wish, food minister KV Thomas said on Thursday. A top government official also added that Rangarajan was willing to review the formula and help break the logjam in Uttar Pradesh over major mills’ refusal to crush cane this season if producing states also agree to do away with the practice of “arbitrary fixing” of cane prices way above the price announced by the Centre.
Last October, the Rangarajan panel had suggested linking sugarcane price to the rates of its by-products, and recommended that 70% of ex-mill prices of sugar and each of its three major by-products — bagasse, molasses and press mud — be paid to farmers for cane supplies. Alternatively, the state government can also fix cane price at 75% of the sugar price, it had suggested. The benchmark price fixed by the Centre — called the fair and remunerative price (FRP) — should be the minimum price for cane purchases, it had added.
“The actual payment for cane dues will happen in two steps. The first will be the payment of a floor price based on the FRP as per the extant mechanism. The rest of the payment of cane dues will be done subsequent to the publication of half-yearly ex-mill prices on the lines indicated,” the committee had said.
The willingness to review the formula signals it may be tweaked to give farmers a slightly better deal, but producing states will still oppose any attempt to strip them of their powers to fix the cane price over and above the rate set by the Centre, as for them this is about politics and not economics, said a senior executive with a UP-based mill.
The friction between the Uttar Pradesh government and the sugar industry worsened on Thursday after authorities warned mills of stern action if they don’t start crushing by December 4 in the western part of the state and by December 7 in the rest. The industry, however, remained defiant.
The Indian Sugar Mills Association (ISMA) director general Abinash Verma said the mills won’t start crushing until they are asked to pay a reasonable price for the raw material. The mills have made it clear that they can’t pay more than Rs 225 a quintal for cane this marketing year that started on October 1, which is in sync with the Rangarajan panel formula and is 20% below the rate of Rs 280 a quintal fixed by the state government, even though the central government has set the floor price at Rs 210 for this season, Verma said.
Explaining the rationale behind the mills’ decision, Verma said at Rs 280 for a quintal of cane, the cost of sugar production should be Rs 3,892 per quintal, factoring in all expenses including transportation, interest on loans and wages, while sugar prices are ruling around Rs 3,000 per quintal. Last year, mills in the state had suffered losses of around Rs 3,000 crore due to high cane prices, which resulted in cane arrears of Rs 2,400 crore in 2012-13, or 75% of the total cane arrears in the country, and now they are not in a position to start crushing if the cane rate isn’t lowered, according to ISMA.
Some states like UP set cane prices high to woo vote bases in the farming community, much to the discomfort of mills as cane price accounts for around 70% of the cost of producing sugar.
After a meeting with finance minister P Chidambaram and Rangarajan on Thursday morning, Thomas said while the Centre has already implemented all the recommendations of the panel – including freedom for mills from the obligation of supplying subsidised sugar for state-run welfare programmes and the scrapping of the release order mechanism through which the government controls sugar sales in the open market – which were in its domain, any decision on the cane pricing formula has to be made by the producing states and the Centre has no role in it. “Still, whatever assistance within norms is possible, the Centre will make that available to producing states soon," he added.
Thomas said an informal group of ministers, headed by agriculture minister Sharad Pawar, will consider providing a financial package to mills, including offering interest-free loans and export incentives, once Pawar is back from a trip to the north-eastern region. “We request farmers and millers to make things smooth. The state government should take initiative to settle the issue earliest. We appeal to farmers and mills not to precipitate the issue,” he added.
The Centre is considering paying interest on loans from the Rs 1,200 crore available under the sugar development fund, food secretary Sudhir Kumar said. The interest amount will be Rs 380-400 crore if banks lend roughly Rs 3,000 crore for two years to the sugar industry against the excise paid by them over the last two sugar seasons, Kumar said.
The government is also considering providing more export incentive and reducing the period for re-export of imported sugar to three months from 18 months now to discourage purchases from overseas, Kumar said.
Sugar output fall predicted
Thomas said the country’s sugar output is forcast to fall to 24.4 million tonnes in the marketing year that started in October, compared with 25.1 million tonnes in 2012-13, due to rough weather witnessed in some of the producing regions. However, production will still cross the consumption of 23.50 million tonnes this year and 8.9 million tonnes of excess stocks from 2012-13 will ensure adequate supplies in the market, he added. The food ministry’s projection, however, is lower than the 25 million tonnes forecast by the Indian Sugar Mills Association.
With this, the country is set to witness surplus sugar production for a fourth straight year. However, asked if sugar output would be affected if mills in Uttar Pradesh don’t crush much due to the price issue, food secretary Sudhir Kumar said: “If the logjam continues and cane crushing gets delayed, obviously, there will be some impact.”