Dues to sugarcane farmers have remained stubbornly high despite the government announcing measures in the past few years to provide alternative revenue streams.
According to senior industry officials, as the 2019-20 sugar season ( October September) draws to a close, around ₹ 16,000 crore remains to be paid to farmers for the sugarcane purchased in previous years.
Of this, about ₹ 11,000 crore is due to be paid to farmers in Uttar Pradesh alone.
The reasons: Part 1
One reason, according to sugar industry sources, for dues not getting cleared is a mismatch between the cost of production and the rate at which sugar is selling in the market.
At present, the all India average cost of producing 1 kg of sugar is ₹ 3536 and that includes depreciation and interest on loans taken from banks, while the all India average realisation so far in the 2019-20 season is around ₹ 32.25 a kg.
“With sugar accounting for 80-85 per cent of the annual revenues of mills, a loss of ₹ 2.753.75 per kg is bound to impact their earnings and cash flows and, with them, their ability to pay farmers,” Abinash Verma, director general of the Indian Sugar Mills Association (ISMA), told Business Standard.
The Centre mandates that sugar mills will not be allowed to sell sugar below ₹ 31 a kg in the 2019-20 season, something the mills want to be increased to at least ₹ 33 a kg.
The NITI Aayog recently called for increasing the average minimum sale price by ₹ 2 per kg.
The reasons: Part 2
The second reason for rising dues this time, according to sugar mills, is a mismatch in cash flows.
Sugarcane farmers are paid for five months a year, that is, during the peak harvest time, when the cane is brought to the mills.
But the sugar is sold over 15-18 months.
Hence, to address the problems arising out of this time gap, sugar mills need working capital from banks.
But banks are reluctant to provide working capital against the entire stock and insist on looking at the turnover of the sugar mills.
This intense scrutiny further dries up the cash flow. There are some sugar companies, both in the private and cooperative sectors, that don´t get working capital from banks because of their poor balance sheets and it is these that have made the least payment to sugarcane farmers in 2019-20.
They are also the ones who have the bulk of the dues.
The reasons: Part 3
The third reason mills are unable to pay farmers on time is the delay in the release of funds that accrue to them from the government by way of subsidies and services they provide.
Sources said ₹ 8,000 crore was stuck with the government on account of unpaid buffer subsidies, export subsidies, and interest subvention on soft loans mills had taken in previous years.
If this ₹ 8,000 crore is cleared by way of supplementary demand for grants in the Monsoon Session of Parliament or otherwise, farmers´ dues will straightaway come down.
In addition to Centre´s dues, some state governments too have unpaid power dues of ₹ 1,500 crore to be paid to sugar mills.
Mills say a quicker option could be to raise the minimum support price by ₹ 2 per kg. This would raise the value of some 12 million tonnes of unsold sugar stocks lying with the mills by ₹ 2,400 crore.
Will this not push up prices? Mills say two years ago sugar was retailing at ₹ 3738 a kg and there were no consumer complaints.
The other take
Sudhir Panwar, a former member of the UP Planning Commission and a long time observer of India´s sugar economy, says mills withhold due sugarcane payments so that farmers get agitated and the firms are able to squeeze concessions and rebates from the Centre and states.
“ This looks like a well planned strategy to deny farmers their dues.”
Sugar production in past five seasons ( Oct Sep) (in mn tonnes)
´15-16 ´ 16-17 ´ 17-18 ´ 18-19 ´ 19-20*
25.1 20.3 32.5 33.1 26.0
*Estimated Source: Sugar Industry and Traders