The new BJP-led government in Uttar Pradesh will have to find a permanent solution, and not a quick fix, to the thorny issue of ‘arbitrary’ cane pricing in the state if the party is to meet its poll promises of ensuring the payment of regular cane dues to farmers within two weeks, the millers have said. To this end, the state government must link the prices of cane with those of its by-products, mainly sugar (as recommended by the Rangarajan panel), they say.
The exorbitantly high state advisory price (SAP) fixed by the state government even when sugar prices have remained low have been the biggest reason for the piling up of cane arrears in Uttar Pradesh year after year, much higher than Maharashtra or Karnataka, who have adopted the fair and remunerative price (FRP), firmed up by the Centre, for payment to farmers (see the charts). UP has fixed the SAP at R305 per quintal for the 2016-17 marketing year through September, 33% higher than the FRP.
What bolstered the optimism of the mills about reforms is the fact that this is for the first time in 15 years that the BJP will be holding the reins both at the Centre and in Uttar Pradesh. This means the state government will have a greater leeway to introduce these reforms in the sugar sector, senior industry executives said.
The BJP had also promised, that if voted to power, it will ensure that the existing cane arrears of around R6,200 crore be cleared within four months.
Millers also want the state to scrap the policy of reserving 25% of surplus molasses for the liquor industry and boost mills’ realisation, which will improve their ability to pay farmers for cane supplies. The Rangarajan panel had suggested that the price of cane should be fixed at 70% of the price of sugar and other by-products, or 75% of the price of just sugar.
Despite a pick-up in sugar prices since 2015-16 on a drop in production, cane costs have still remained too high for comfort (see the charts). The R6,200 which the mills in Uttar Pradesh owe to the farmers as on March 10 is much higher than those in other key sugar states such as Maharashtra and Karnataka. This is partly because UP mills have crushed 10 million tonne additional cane this year, while others like Maharashtra and Karnataka have crushed less than a year earlier. Also, UP mills have to pay SAP to farmers, while Maharashtra and Karnataka have adopted the FRP.
At least two reform measures can be initiated immediately, according to Indian Sugar Mills Association director general Abinash Verma. The state should implement the linkage formula at the earliest or adopt the FRP as the benchmark price of cane.
The second one is about the rule that at least a fourth of surplus molasses (after captive consumption) be kept for the liquor industry. This has been denting the margins of mills for years now. Mills have complained that liquor players have been taking advantage of such a policy, forcing them to offload the cane by-product only at a fraction of its reasonable market price.
“Considering Prime Minister Narendra Modi’s thrust on ethanol blending with petrol, we are expecting that, at least, surplus molasses must be de-reserved in the state, so that ethanol blending will also get a boost and the liquor industry will have to pay the market price for purchasing molasses from sugar mills,” Verma said.