In a memorandum to Ram Vilas Paswan, Union minister for consumer affairs, food and public distribution Karnataka chief minister Siddaramaiah said the recent package of interest free loans to sugar factories for payment of partial gap in the fair and remunerative price (FRP) to farmers for the season 2014-15 was not sufficient. Under the package, mills in Karnataka are entitled to get only Rs 900 crore out of Rs 6,000 crore total package. The government of India had announced the package at the rate of Rs 200 per metric tonne.

Siddaramaiah said Rs 200 per tonne is inadequate and it will not even help meet 50 per cent gap between FRP and price which can be done on revenue sharing basis. Further, the factories are overburdened with debts and government giving them loan will lead to further indebtedness in future years. Hence, it is requested to double the assistance to Rs 400 per tonne to the farmers and provide the same as direct subsidy, the chief minister said.

During 2014-15, a record quantity of 45 million metric tons of sugar cane was crushed in Karnataka and 4.9 million metric tons of sugar was produced at an average recovery rate of 11.06 per cent. The Commission for Agricultural Costs and Prices (CACP) has determined the FRP for the year 2014-15 at Rs 2,200 per tonne for a recovery of 9.5 per cent, with an assumption that sugar prices would be in the range of Rs 30-34 per kg during the season. In reality, the prices of sugar continue to fall and reached a level of Rs 21-23 per kg inclusive of duties, which has led to sugar companies defaulting in payment of FRP by Rs 2,433 crore, in the state. If the revenue sharing formula is applied as per C Rangarajan Committee report, there would be a gap of Rs 400 to Rs 500 per metric tonne vis-a-vis FRP. Hence, there will be an amount of Rs 2,000 crore would be left in arrears, due to steep fall in sugar prices, Siddaramaiah said.

"The state government is not in a position to further support the payment of farmers in the year 2014-15 as it has exhausted its resources in ensuring the payment to farmers for the year 2013-14. During the year 2013-14, Karnataka government had announced sugarcane price of Rs 2,500 per metric tonne However, sugar prices started falling since November 2013 and the state government through various measures such as exemption of purchase tax, road cess and through direct subsidy to farmers had given assistance to the tune of Rs 1,173 crore to clear the dues," he said.

However, despite all these efforts there remains an arrears of Rs 923 crore and the state government is taking all measures to make the mill owners to pay the same at the earliest, he said.

During the season 2013-14, the government of India had sanctioned loan of Rs 892 crore to the sugar mills in Karnataka under SEFASU loan scheme and this to some extent has helped in overcoming the difficulties in making payment to the farmers.

The sugar year 2015-16 will commence from next month. The government of India has already announced FRP for the season at Rs 2,300 per metric tonne for a recovery of 9.5 per cent and while deriving this rate, CACP has considered the average sugar price that would be prevailing during the season at Rs 30-34 per kg, whereas in reality the ex-mill price of sugar, excluding duties is around Rs 19. "In the light of this situation, we are afraid that the sugarcane payment for the season 2015-16 will be much more difficult when compared to 2014-15. In view of these factors we request you to take advance steps to address the issue of falling price immediately," Siddaramaiah said in his memorandum.