Minister of state for water resources Sanjeev Balyan, a sugarcane farmer from prosperous and influential western UP, has a problem with TV coverage, which he says reflects urban bias. “When I switched on the TV, the headline invariably was Modi has made tea costlier, as sugar prices have gone up by Rs 2 a kg,” says the former minister of state for agriculture, recounting his experience in the last two years, which he spent in trying to sort out virtually intractable issues in the sugar industry. Such urban bias for consumers, says Balyan, tends to influence policy decisions and governments have to be careful in taking decisions related to prices. “Tell me a formula by which you can pay higher price to farmers and lower price to consumers,” he quips, when asked why minimum support prices (MSPs) are not increased substantially. The minister’s confusion is by no means self-confined. As a sugar farmer, he saw the problems of the cane growers from the inside, determined to clear the mess and resolve problems of cane growers, whenever he got a chance. Balyan got the chance in 2014, but two years in the saddle revealed to him the outsiders’ version; things are difficult to get a handle on because sugarcane farming is a state subject. “The whole world follows a system wherein cane price is automatically determined as per some formula in relation to the revenue realised from sugar and some by-products,” says Abinash Verma, director general of Indian Sugar Mills Association (ISMA). The world of sugar in India, however, is tantalisingly opaque. In May 2016, the government out of the blue, spotted sugar shortage lurking on the horizon, so an export incentive was withdrawn, 20 per cent duty on export was imposed and the current import duty of 40 per cent may be slashed any day. All these measures have a single objective, to keep domestic retail prices of sugar within Rs 40 a kg. For the last two years, the government’s focus has been to increase sugar prices, as mills withheld payment to farmers, complaining that their realisation was lower than the cost of production. When the country had two consecutive droughts in 2015 and 2014, the mills had surplus sugar for exports because of previous years’ stocks. Now when the country is tipped for excess monsoon rains, there may be a fall in production. Reason? Sugar being a hardy crop, once planted, leaves no room for replanting for the next two years. For example, the crop planted in February will be harvested in November in Uttar Pradesh, while it takes even more time to mature in Maharashtra, two of India’s largest sugar cane producing states. The more instructive question to ask is why has this so called sugar cycle – two years of export followed by a year of import and another normal year – not yet been broken? As the second largest sugar producer after Brazil and by far the world’s biggest consumer, domestic production of sugar in India has a large influence over the global movement of prices. The Catch-22 situation repeats itself. Almost every year, sugar mills seek some government intervention. After the Centre implemented some recommendations of the Rangarajan committee report in 2013, the assumption was that problems by and large, had been resolved. But in 2014 and 2015, sugar mills did not pay the farmers in time for the sugarcane they purchased, leading to unrest in many places. Sugar is the only industry where the mills buy raw material, in this case sugarcane, on credit without any commitment on payment. Under the rules, they are supposed to pay within 14 days of the purchase and if they fail, mills are obliged to pay a simple interest on the arrear. However, rules are flouted with impunity. Mills are paid subsidies, assistance and interest-free loans, all from taxpayers’ money when farmers’ protest against non-payment of dues. Mills complain that they are not able to sell on low demand or lower prices of sugar and hence hold back the payment. Acting on the Rangarajan committee, the Centre in 2013 allowed the mills freedom to decide how much quantity they could sell removing the monthly allocation of quota for each factory. In the process, they completely removed the 10 per cent quota that mills were selling to the government at lower rates. Are mills responsible for the losses if prices fall because of over production? Mills argue that while the rate of the raw material (sugarcane) is decided by the government it is they who bear the losses when market prices fall below cost of production. The counter argument is that since sugar is a processed food product, why are the mills selling below their cost of production? After all, no other processed food product is sold below its production cost. Why indeed? Even as the debate on sugarcane pricing continues, Maharashtra and Karnataka have implemented the Rangarajan formula while Uttar Pradesh has done so without public announcement. The government in UP has not raised the state advised price (SAP) of sugarcane for the last three years and has subsidised a part of the Rs 280 per quintal rate of sugarcane. The committee has suggested that farmers be paid fair and remunerative price (FRP) as the minimum price and subsequently, on a half-yearly basis, the state government concerned should announce the ex-mill prices of sugar and its by-products. After that, farmers would be entitled to 70 per cent share in the value of sugar and byproducts produced from the quantity of cane supplied by each of them. It also said states should not announce SAP. However, states have not followed and continue to declare an SAP every year, which is always above the FRP fixed by the Centre. The Supreme Court has ruled that SAP is also binding on the mills located within a state. The only recommendation of the committee yet to be implemented is abolition of cane area reservation. It has asked for allowing a contract between farmers and mills for enabling the emergence of a competitive market for assured supply of cane. Currently, the state government allocates a geographical area for each mill to source the sugarcane and even farmers are not allowed to sell beyond the demarcated boundary. The critical question, as ever, is when will the government stop giving subsidies or incentives to sugar mills? The NDA government, while trying to project itself as pro-farmer, had in November last year, announced a scheme of direct transfer of subsidy to their bank accounts, instead of giving it to the mills. The government had announced a subsidy of Rs 1,147 crore to sugar mills by agreeing to pay the amount to sugarcane farmers on behalf of the companies, enabling them to export 3.2 million tonne of the sweetener. The scheme has since been withdrawn after the government wanted to stop export, apprehending shortage in the local market next year. The production-linked subsidy of Rs 4.50 per quintal was paid directly to cane farmers during the 2015-16 season (October-September) on behalf of the mills on the condition that they would export at least 80 per cent of their export quota. The Centre has allotted mill-wise export quota, which totals up to 4 million tonne. The sugar mills adjusted the subsidy amount (paid by the government directly to farmers) from their total dues. Says president of the Kisan Jagriti Manch, Sudhir Panwar: “Uttar Pradesh is the first state, which directly paid a part of the cane price to farmers as mills refused to pay above the FRP and threatened not to crush the cane. The state’s SAP at Rs 280 a quintal is considered much higher than the Centre’s FRP of Rs 230 a quintal.” He believes the state will continue to have the SAP unless until the FRP takes care of the cost of production in a state. For example, the cost of production of sugarcane is Rs 254 per quintal in Uttar Pradesh, he points out and adds that the state government will never agree to a lower FRP. There are two options left – mills will have to clear the cane payment within 14 days at FRP basis and the remaining difference against SAP has to be either given by the government or by mills when their position becomes viable. There have been voices calling for a complete decontrol of the sugar sector. Has that time come? Not at all, asserts Panwar, also member of the Uttar Pradesh planning commission. “Sugarcane is not like any other agriculture crop which can be left at the mercy of mills,” he says, because farmers will be at a disadvantage, as they lack bargaining power, particularly when there is only one sale option. Farmers have to sell to a sugar mill within a certain time after harvesting and again, there is no other option. During surplus years, mills deliberately slow the crushing operations so that they do not have to buy more sugarcane. “If the government follows the Brazil model and compensates farmers for not growing sugarcane in case of a surplus year, we will be very happy to follow,” Panwar states, adding that the government cannot shy away from its responsibility of farmer welfare. In the last two years, sugar mills in Uttar Pradesh have collectively told the state government not to raise sugarcane prices, as it may hamper their efforts to open the mills. Since there is fixed time period for the crop to be harvested and crushed, which cannot be delayed, the government succumbed to the pressure and did not increase the SAP. With such posturing by mills, there is a certain trust deficit between millers and farmers. But sugarcane growers do not want government control to go. Rakesh Tikait, spokesperson of Bharatiya Kisan Union and an influential farmer leader of western Uttar Pradesh where sugar mills of many big companies -- Bajaj Hindustan, Simbhaoli Sugars, Mawana, Dhampur and Triveni Enginnering -- are located, believes the only solution is effective government control. “The government must show courage and set an example of the kind of action it can take,” he says, adding categorically, “There will not be a single rupee as arrear left.” Mills and ruling party politicians collude to allow the cane arrear to linger on. “Without government patronage, no mill can disobey its order,” Tikait explains. Points out ISMA’s Verma: “The government should step in during times of depressed sugar prices to bridge the gap between what the industry can pay as cane price to the farmers, on the basis of revenue realisation and the FRP, which the government wants the farmers to get, from a price stabilisation fund, created through a sugar cess.” “This is a brilliant recommendation of commission for agricultural costs and prices (CACP) which, for all the right reasons, should immediately be accepted and implemented across the country,” he advises. Well, despite all the carping and the arrears, the sugar industry does not appear too unhappy with the arrangement.