Political pundits will marvel at Mayawati’s grand strategy. Uttar Pradesh goes to the polls next year. Her 22 per cent or so Dalit vote bank is secure, but she needs around 36 per cent votes to return to power. She could do that with the aid of “like-minded” parties but she knows how fickle that support can be; and you never know what they may demand in return. And if her Bahujan Samaj Party does well in Uttar Pradesh in the 2014 general elections, she could play a role in the power politics of New Delhi.
So, she is expected to push for job reservations for Muslims, who comprise around 18 per cent of the state’s population. She will also push for the trifurcation of the state, which will surely fetch her votes. Meanwhile, she has decided that sugar mills in the state will pay farmers Rs 250 for every quintal of sugarcane they buy for the current production season. This is a sharp jump from Rs 210 last year. In the past, mills that refused to buy sugarcane from farmers or delayed payments were taken to task by the Uttar Pradesh government. This year would be no different, Ms Mayawati has said. With all these sops thrown in, it shouldn’t be difficult for her to hit the magic figure of 36 per cent in next year’s elections to the state assembly.
It’s the last move that interests us here. The sugarcane crop in Uttar Pradesh is estimated at around 66.5 million tonnes. This is 7 to 10 per cent higher than last year. Farmers had made good money then and were perhaps aware that this being the last season before elections, Ms Mayawati would raise the price sharply. So they sowed sugarcane wherever they could. Though they had demanded up to Rs 260 per quintal, they shouldn’t be too unhappy with what they have got. The crop of this size and the extra payment of Rs 40 per quintal means additional burden of over Rs 2,500 crore on the mills. This, in other words, is Ms Mayawati’s largesse to the 4 million or so sugarcane farmers in the state. The beauty is that not a penny of this money comes from the state government — it’s all funded by the mills. It will be difficult to come across a better example of having your cake and eating it too. You could also call it redistributive justice because she has taken money from the sugar barons and handed it over to farmers. It was said that wherever you have a sugar mill, you will find three Ms: makkhi or housefly, machchar or mosquito and Marwari or rich businessman.
Spare a thought for the mills too. The current price of sugar in the market is Rs 33 per kg. Of this, what reaches the mill is Rs 28.50. With the price announced by Ms Mayawati, the cost of producing sugar, mills say, will work out to Rs 28 per kg. The profit is just 50 paisa on every kg. The margin thus falls below two per cent. Of course, mills have their distilleries, byproducts et cetera to make money so they are unlikely to report losses. Will these profits absorb the hit of Rs 2,500 crore caused by Ms Mayawati’s announcement? I doubt it.
It would help the mills if sugar prices were to move up. But that looks unlikely. The Centre controls retail prices through active market intervention — it releases stocks when prices climb and vice versa. The Manmohan Singh government’s biggest nemesis after corruption is inflation, especially in food items. High prices have led to high interest rates, which threaten to choke growth and create joblessness. So, it is unreasonable to expect the Centre to let prices of sugar, or for that matter any commodity, rise. Between the Manmohan Singh government’s compulsion to keep prices low and Ms Mayawati’s desire to win votes, the mills are surely caught between a rock and a hard place.
Some sugar mills fear that defaults in payments to farmers could occur in the near future. In a couple of months it will become clear till what time the mills will run: longer the season, higher the possibility of default. And if the mills are threatened with imprisonment for not clearing the dues, defaults may happen to the banks. Eventually, the Centre will have to offer some kind of relief. That’s the other beauty of the state-administered price — the final tab, too, is picked up by somebody else.
Sugar production this year is expected to hit a new high. While the Centre expects it to be 25 million tonnes, industry thinks it could be at least 1 million tonnes higher. The buffer stock with the Centre (which is used to keep prices under check) stands at 5.5 million tonnes, and the demand is 22 million tonnes. This leaves a surplus of 8.5 to 9.5 million tonnes by the time mills have crushed all the sugarcane in April or May next year. If the buffer requirement of 5 million tonnes is taken out, this still leaves a surplus of 3.5 to 4.5 million tonnes with the mills. There is, of course, a cost attached to these stocks. The government can help by allowing mills to export sugar. The mills are bound to lobby hard for this concession.