Though Uttar Pradesh chief minister Akhilesh Yadav’s playing hardball with the sugar industry, including registering cases against many firms and threatening takeover of mills, along with some small concessions has resolved the immediate crisis, worse lies ahead. After formally saying they would not crush sugarcane this season as they could not pay anything more than R225 per quintal as against the government’s R280 per quintal—there was the fear the state advised price (SAP) could even go up to R300 but the mills’ agitation stopped this—the mills have quietly come around with the government giving them the option to pay R20 a few months later and a waiver of various taxes/levies adding up to R11.03 per quintal.

Given the sugarcane mills have to purchase around 80 million tonnes of cane, back of the envelope calculations suggest the mills in Uttar Pradesh will run up losses of around R4,000-4,500 crore this year as compared to R3,000 crore last year. Since the mills aren’t going to pay this out of their pockets, the way things will pan out will be that, as in past years, the mills will hand out IOUs to farmers, probably of the amount of extra losses they will incur this year. In which case, though Yadav has bought time by placating angry farmers in a pre-election year, anger could erupt soon enough if farmers don’t get their arrears within a reasonable period of time.

While mill losses could get reduced a bit more if the central government comes out with a relief package soon—an informal group of ministers is working on it—the final solution only lies in the state accepting the Rangarajan formula of states no longer announcing SAPs and, instead, the farmers accept a situation where they settle for getting 70-75% of the value got by mills after crushing cane and selling various by-products. Anything else is merely postponing the day of reckoning.