The Centre has again announced a package for sugar mills to enable them to discharge cane arrears of roughly Rs 21,000 crore owed to farmers in the current 2014-15 season. Like previous interventions, this one is also unlikely to achieve much, as it does not address the industry’s core problem. The latest proposal envisages mills borrowing up to Rs 6,000 crore from banks. This money would, in turn, be credited directly into the accounts of farmers against their outstanding dues, with the Centre bearing the entire interest cost on the loans repayable after one year. The question that arises is: Why would an industry, already saddled with debt, seek to borrow another Rs 6,000 crore? Even if this money comes interest-free, the fact that it cannot be used for any other purpose — apart from mills having to generate the resources to repay the entire Rs 6,000 crore in a year’s time — renders the scheme a virtual non-starter.

The real issue facing the sugar industry today is of ex-factory realisations, which are currently around Rs 2,350 per quintal in Uttar Pradesh and Rs 2,100 in Maharashtra, against their corresponding year-ago levels of Rs 3,150 and Rs 2,850 respectively. This is a result of surplus domestic stocks from five consecutive seasons of high production, in conjunction with a global slide in sugar prices. Mills are expected to start the next season from October with stocks of over 100 lakh tonnes (lt), against the normative three-month consumption requirement of 60 lt. The ensuing pressure on sugar realisations has meant factories aren’t in a position to pay even the Centre’s fair and remunerative price, or FRP, for cane — about Rs 222 per quintal in UP and Rs 262 in Maharashtra — forget the higher Rs 280 levels fixed by states such as UP. Asking them to contract fresh loans, even at zero interest, to pay farmers cane prices totally de-linked from sugar realisations, is hardly a solution. Mills are, in any case, undertaking interest-free borrowings from farmers — which is what the huge cane arrears payable now effectively amount to.

If sugar prices have plummeted to levels making even the payment of the FRP difficult, it is obvious that farmers must reduce their cane area in favour of crops — pulses, vegetables or indigenous oilseeds like groundnut, mustard and sesame — requiring special production thrust, both from a demand and water conservation perspective. The danger from “packages” meant ostensibly to protect cane growers is that they send quite the opposite signals, resulting in overplanting and creating conditions for the next payment crisis. It is high time the Rangarajan Committee’s formula of linking cane prices to average sugar realisations is implemented. That is the best and only sustainable solution for a mollycoddled industry.