Explaining the UP sugar crisis

Sugar crisis deepens in UP with 65 private millers suspending operations

It’s been simmering for a while, but the sugar crisis in Uttar Pradesh, one of the largest sugar producing states in the country reached a brink after UP based sugar mills put crushing operations on hold and 65 private millers including the likes of Bajaj Hindustan and Balrampur Chini sent closure notices to the government. 

What’s gone wrong and where could this crisis be headed? Here’s a quick explainer – 

 

1) Millers are unhappy – why? 

 

Private Mills, numbering almost a 100, claim they have been running losses in successive crushing seasons because the cost of cane is higher than the cost of sugar. The special advisory price (SAP) paid by millers to farmers has increased from Rs 165 three years ago to Rs 280 a quintal, marking an increase of 70%. But prices of sugar, which are controlled by the government, on the other hand have risen only by 7-8% in the same period, which has left millers reeling under losses. In per kg terms, cost of production for millers is Rs. 36 but realization is only around Rs 29.5, which means millers are making a loss of Rs 6-7 per kilo of sugar sold. They already owe Rs 2,300 Cr to farmers as arrears for last year. 

 

2) What are the millers demanding? 

 

The millers have been demanding affordable cane prices, in line with the recommendations of the Rangarajan Committee. They say, their paying capacity has come down to Rs. 225 a quintal and any price above that would lead them to incur losses. Millers want the price of cane to be at 70% of the revenue realized from sugar, bagasse, molasses and press mud, or at 75% of revenue realized from sugar. 

 

3) What is the Central govt proposing to do now? 

 

A high level meeting has been convened today to discuss a relief package for the sugar industry. Among the proposals expected to be discussed include giving interest free loans where millers can borrow funds, and the centre bears the interest, increasing import duty from 15% to 50% in order to curtail imports and jack up domestic prices, relaxation in the tenure of loans given to factories, export incentives, creation of a 5 million ton buffer stock among other things. In total the package could cost Rs. 50,000 Cr according to a report in this newspaper. 

 

4) Will the government cut cane prices? 

 

While millers are lobbying for a rollback, farmers are demanding that SAP be raised above Rs 300. This being an election year the state is unlikely to rollback prices. But if the state had to compensate millers for the Rs. 50-55 per quintal gap between current SAP (Rs 280) and millers’ paying capacity (Rs 225), the government would have to bear a Rs. 4000 Cr subsidy burden. The state government is clearly in a fix as on one hand it is under political compulsion to announce higher prices, and on the other, deal with demands of a rollback or subsidy which it can ill afford given strained finances of the exchequer. 

 

5) What’s the impact of this crisis on farmers & the state? 

 

There are 35 lakh cane farmers in Uttar Pradesh and sugar is a Rs 35,000-crore industry, which also happens to be the biggest industry in the state. A delay in crushing will adversely impact farmers as they now want to clear fields to sow wheat according to reports. “Any delay will adversely affect both the crops but the government is yet to get the mills started. The cane SAP was Rs 280 per quintal last year and factoring in inflation and increased input costs it should be fixed at Rs 327 per quintal for the current year," Professor Sudhir Panwar of Lucknow University told the Economic Times. With the state unlikely to yield to this demand for higher administered prices, this is likely to become a major political issue in Uttar Pradesh where sugarcane farmers are an influential vote bank.