Sugarcane fast losing 'cash crop' status

ANALYST`S VIEW

More often than not, sugar mills in India will not be in a position to recover costs, the culprit being the irrational way cane prices are fixed by some states.

Apparently, a state like Uttar Pradesh, accounting for nearly one-third of India’s sugar production, will issue an annual fiat to mills to buy cane at a hefty premium on statutory minimum prices (SMPs) fixed by the Centre.

But the industry would not be found obliging. Mills, when not able to sell sugar at remunerative prices, will not have money to settle cane bills. We saw this on a large-scale in UP in the season ended September 2008. It is, however, no surprise that the state government-owned and cooperative factories are withholding cane payments of a much greater degree than private mills.

Groups such as Bajaj Hindusthan, Balrampur Chini and Triveni have over the years expanded cane crushing capacity to enjoy economies of scale. At the same time, they have invested heavily in power units which burn bagasse to produce electricity, molasses-based distilleries and ethanol plants.

Profits earned from the allied businesses are enabling these groups to take care of the liabilities on the cane account better than the rest.

There is no doubt an initial excitement among growers when a state using its arbitrary power would add a big premium to SMP. But ISMA president Ranjit Puri aptly says that when dues mount, as was once again seen last season, it is the small farmers who suffer “extreme hardship.”

The reason why the small farmers are at the receiving end is because they bring their cane to the factory gate once the big ones have harvested the crop and sent it to mills for crushing. Cane bills are settled on the basis of ‘first come first serve’. In difficult times when mills run out of cash, the small farmers are kept waiting for “months together.”

Industry official Om Prakash Dhanuka wonders if in the present circumstances, when farmers are kept waiting indefinitely for payments, cane can be called a cash crop.

In disappointment, traditional cane growers in almost all states have started growing other crops such as maize, cotton, wheat and rice. Between 2006-07, when cane was grown on a record 5.151 million hectares yielding an all-time high crop of over 355 million tonnes, and this season there has been a fall of about 30 per cent in land under cane.

The lower land coverage, late harvesting in UP and Maharashtra and fall in sugar recovery are combining to restrict sugar production this season to 19 million tonnes against the earlier projection of up to 22 million tonnes. Since the season began with comfortable stocks of nearly 8.1 million stocks, the retail sugar market is not to experience shortages till at least the beginning of 2009-10.   

We are seeing a surreptitious campaign launched for allowing import of raw sugar now. The campaigners are least concerned that such a move would harm growers. Mills, already losing over Rs 400 a quintal of sugar, would go on postponing settlement of cane bills.

But the trade has nothing to gain if duty free imports under Advance Authorisation Scheme are made on grain to grain basis, allowing exclusive participation by mills. That is why it wants the much abused tonne to tonne formula of imports reintroduced.  

Hopefully, while deciding on imports, the government will keep the interest of 50 million growers and the health of the industry in view. India is counted among the more efficient producers of sugar in the world.

ISMA director general S L Jain claims India not only derives sugar from cane at lowest cost among all producing countries, but its raw sugar, a product of recent origin here, has proved to be the world’s best.  

What we achieved on export front last year – despatches of nearly 5 million tonnes to overseas destinations – could become a regular feature provided reason dictates cane price fixing. Instead our credulity is put to test season after season by states pretending to be “sole benefactors” of cane growers without sparing a thought for the industry’s health.