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Debt relief no long-term solution to sugar woes

Experts have called the latest loan to mills a stop-gap arrangement and have reiterated the need to link sugarcane and sugar prifces

Sanjeeb Mukherjee  |  New Delhi 

Dayaveer took a bold decision when, against the wish of his brothers, he decided to sell his sugarcane to a nearby kolhu and not to the Umesh Modi-owned sugar mill in whose cane area his farm in western Uttar Pradesh falls. Though the kolhu paid him Rs 190 a quintal, while the mill was required to pay him Rs 280, Dayaveer is happy - at least he has been paid for his sugarcane.

For hundreds of thousands of other farmers in in the region who sold their stock to the mills, the 2014-15 sugarcane crushing season has been a nightmarish experience. The dues accruing to sugar mills climbed to Rs 21,000 crore on March 31 from around Rs 17,000 crore a year ago.

A sharp drop in sugar price to almost Rs 260 per quintal and a flat sugarcane purchase price of around Rs 280 per quintal have pushed both the industry and farmers to the brink of bankruptcy. The problem is nationwide, but more acute in western Uttar Pradesh. The state is India's second biggest sugar producing region after Maharashtra and home to almost all big private mills.

The central government has announced a series of measures to enable the mills clear the dues of the farmers. Thus, in August last year, it increased the import duty on both raw and refined sugar to 25 per cent from 15 per cent. This was meant to check the slide in prices, though the impact was minimal.

Then, in February, it provided a subsidy of Rs 4,000 per tonne for export of 1.4 million tonnes of raw sugars. It also waived off the excise duty on ethanol to incentivise mills to convert sugarcane juice into ethanol. This too didn't stem the tide.

Recently, the government extended an interest-free loan of Rs 6,000 crore to mills to help them clear the dues to farmers. But, say sugar industry executives, all these steps do not address the core issue of how the 3-4 million tonnes of surplus sugar with the mills would be sold.

"The loan received by the mills will go to the farmers and the industry will still be saddled with the huge unsold stock and lower prices. Thus, this may not be the real solution for the industry's problem," says Indian Sugar Mills Association Director General Abinash Verma. "What the industry wants is to utilise this Rs 6,000 crore for creating a sugar buffer stock which may improve the sugar prices to a reasonable level so that the industry may stop making further losses. This leaves industry with no other alternative but to continue to hold huge stocks and incur losses."

"The government should help reduce surplus sugar stocks held by mills and (help) improve sugar prices to ensure that the mills are able to start their crushing operations in the next sugar season from October 2015," brokerage firm Geofin Comtrade said in a recent note.

However, food ministry officials feel that despite having limited responsibilities in the matter, the Centre has done more than enough for the sugar mills and it is now their responsibility to ensure that farmers get their dues.

"Our job is to ensure that farmers get the fair and remunerative price fixed by the Centre, which we are doing; while much of the other decisions fall within the domain of the states and we have given a free hand to the states to take action against mills which do not make payment to farmers," Union Food Minister Ram Vilas Paswan recently told Business Standard.

Paswan categorically rejected the industry's demand to create a buffer stock of around 3-4 million tonnes of sugar at the government's expense to absorb the surplus. "When production is increasing and industry is decontrolled, then how can I re-impose control on the industry by purchasing their surplus," the minister said. He said that sugar mills should understand that it was they who were pressing for decontrol of the sector and hence have to take responsibility for the consequences.

Most commentators have called the latest loan just a stop-gap arrangement and have reiterated the need to link sugarcane and sugar prices. While Maharashtra and Karnataka, another large sugar producing state, have made some moves in this direction, Uttar Pradesh has opposed it strongly.

While the debate continues, for Dayaveer and many others, sugarcane is gradually losing the charm it once held, but they are compelled to cultivate it nevertheless in the absence of any credible alternative. "We tried to convince farmers in western Uttar Pradesh to shift from sugarcane to other crops like pulses, jowar or even guar seed, but they seem reluctant as not only the crop is sturdy and can weather any adverse condition, but also does not require much care," an official from Uttar Pradesh's agriculture department says.

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First Published: Wed, June 17 2015. 22:29 IST