Payment arrears of sugar mills to sugarcane farmers in Uttar Pradesh during the ongoing 2017-18 crushing season (October-September) have touched Rs 6,500 crore, with the prospect of them rising further in the coming weeks.
According to the latest data from the UP Cane Commissioner’s Office in Lucknow, UP mills had, as on March 16, bought sugarcane worth Rs 25,349.96 crore at the state government’s advised price or SAP of Rs 315 per quintal for “general” and Rs 325 per quintal for “early-maturing” varieties.
Out of the Rs 25,349.96 crore, they were supposed to pay Rs 22,879.99 crore within the stipulated 14 days of taking cane delivery. But actual payments have only been Rs 16,380.78 crore, translating into dues of Rs 6,499.21 crore. These arrears are more than the Rs 4,175.48 crore dues for the 2016-17 season last year until March 19, when the current Yogi Adityanath administration had just taken over.
The BJP’s 2017 UP Assembly election manifesto had promised that its government would ensure farmers got full payment for their cane within 14 days of sale, a provision that already exists in the UP Sugarcane (Regulation of Supply and Purchase) Act of 1953. But the Cane Commissioner
Office’s data shows actual payments so far at only 71.59 per cent of the amounts due (Rs 16,380.78 crore versus Rs 22,879.99 crore). Interestingly, the UP government’s own corporation and cooperative sugar factories have paid only 70.58 per cent (Rs 1,402.80 out of Rs 1,987.39 crore), while the ratio for private mills is slightly better at 71.69 per cent (Rs 14,977.98 crore out of Rs 20,892.61 crore).
A region-wise breakup of the current Rs 6,499.22 crore arrears shows it to be the highest at Rs 1,426.49 crore in Meerut (which also includes Baghpat, Ghaziabad, Hapur and Bulandshahr districts), followed by Rs 1,247.65 crore for Lucknow (Lakhimpur Kheri, Hardoi and Sitapur), Rs 1,166.16 crore for Saharanpur (including Muzaffarnagar and Shamli), Rs 887.03 crore for Moradabad (including Bijnor, Amroha, Sambhal and Rampur) and Rs 718.18 crore for Bareilly (including Pilibhit, Shahjahanpur, Badaun and Kasganj). The incidence of arrears is less in eastern UP, where cane cultivation, too, is not as much widespread or concentrated.
Millers attribute the rising cane arrears to falling sugar realisations. Since the start of this season – mills began crushing operations around October 25 – ex-factory prices of sugar in UP have fallen from Rs 36-37 a kg to Rs 30-31 now. For every one quintal (100 kg) of cane crushed, mills produce roughly 10.6 kg sugar. The revenue from sugar sales at Rs 30-31/kg can, then, just about cover the bare-SAP cost of cane (Rs 315-325/quintal), but not its transport from the purchase centre to the mill, leave alone expenses towards processing, wages and salaries, interest charges, maintenance and other overheads.
“Our total sugar production cost today works out to Rs 36-36.50 per kg. So, on every kg of sugar sold, we are losing Rs 6 or more,” said the chief financial officer of a leading listed sugar firm. Moreover, with falling prices, the valuation of sugar stocks for availing working capital finance also comes down, making it all the more difficult for mills to pay cane farmers. Banks normally extend cash credit limits to mills up to 85 per cent of the value of their stocks. Mills further use 85 per cent of this borrowed money to fund cane purchases and the rest for other working expenses.
“Every dip in sugar realisations has led to a corresponding decline in our drawing power or overdrawing against existing limits. At Rs 30/kg, our drawing limit is only Rs 25.5, of which Rs 21.67 can be used for cane procurement. That can effectively pay a cane price of Rs 230 per quintal at 10.6 per cent sugar recovery,” added the same CFO.
Worse, prices could fall further in the days ahead, as India’s sugar production is projected to hit a record 295 lakh tonnes (lt) this season, as against 203 lt in 2016-17. The more-than-expected rebound — output was initially pegged at just 251 lt — has been because both UP and Maharashtra are slated to produce 100 lt-plus each, compared to their last season’s levels of 87.73 lt and 42 lt tonnes, respectively. But that could also mean further misery for cane growers in the two states.