Are sugarcane farmers at the mercy of sugar mills ?

For the time being, it seems the continuing impasse over sugarcane prices is over. With Uttar Pradesh government agreeing to dole out a financial package to the private sugar industry, and the Maharashtra government reaching out an agreement over the prices to be paid to protesting farmers, the already delayed crushing season is beginning to start.

But with two farmers committing suicide, one in Lakhimpur in Uttar Pradesh and another in Belgaum in Karnataka in the past few days, and farmers still protesting in several parts of the country, it is not all that sweet on the sugar front. A high price for sugarcane last year had brought in more area under the crop, and with a bumper harvest expected this year, the farmers feel let down for not being paid an adequately remunerative price. The sugar mills, sitting on a very comfortable buffer stock of sugar this year, found it the right time to form a cartel seeking more financial support as well as increasing its bottom line by refusing to pay a higher price to growers.

The threat paid. 

The Indian Sugar Mills Association has first declined the Uttar Pradesh government’s offer to set-up a high level panel to look into linking cane and sugar prices. But eventually walked away with a Rs 800-crore plus package. Aware of the face-off, the UPA Govt has finally asked Agriculture Minister Sharad Pawar to resolve the stalemate by inviting all stake holders as well as the Chief Minister of Uttar Pradesh and Maharashtra on Dec 6.  With Sharad Pawar’s interest in sugar well-known I don’t know how a meaningful solution is expected. In fact, it is because of the faulty government interventions all these years that the crisis has taken a cyclic route, emerging once in every four to five years. 

The question that I am being repeatedly asked is whether farmers are justified in demanding a higher price. Yes, farmers are within their legitimate rights to ask for a higher price for their produce. After all, if Government employees can get DA linked to inflation every six months, and after every few years get the benefit of another pay commission, the farmers too deserve to get an assured economic price linked to inflation for their crops. Farmers alone cannot be expected to carry on with the burden of providing cheaper sugar to the consumers.

Sugar mills on the other hand are defiant. 76 of the 99 private sugar mills in Uttar Pradesh had given a suspension notice to the State Government. Private sugar mills in Maharashtra and Karnataka too had refused to operate. The mills stand is that they are not in a position to pay more than Rs 225 per quintal as the cane price, which is Rs 55 less than the State Advised Price in Uttar Pradesh. Agitating farmers are demanding Rs 300 per quintal. In Maharashtra, sugar mills had first offered to pay only Rs 240 per quintal against the demand of Rs 300. But finally, as part of the agreement reached with farmers mills accepted Rs 265 per quintal as the price to be paid in two installments.

Before we go into the specific case of sugarcane prices, let us first look at the economics of agriculture in general. Several studies have shown that farmers as a class fall in the lowest category of income slab in the country. The Ministry of Agriculture has acknowledged in Parliament that the average monthly income of a farming family is less than Rs 2,400 per month. This is less than what we in the cities pay to our maid servants. Isn't it a travesty of justice to know that the person who produces food for the country -- annadata -- himself lives in poverty and hunger?

It shouldn’t shock people to know that roughly about 60 per cent of the daily wage workers under MNREGA are actually land owners.  

Sugarcane farmers are no exception. Except for some big farmers, most of the cane growers are small farmers whose livelihood depends upon sugarcane alone. Let's not forget that unlike wheat and paddy, sugarcane is an annual crop. Farmers wait for a year to get a remunerative price. The one-time payment they receive for the sugarcane crop runs their families expenses throughout the year. Often they are not paid for months if not years. In Uttar Pradesh alone, cane arrears stand at Rs 2,400-crores. And when sugar mills across the country form a cartel and refuse to pay a remunerative price, what do you expect the farmers to do? 

Sugar industry cites the crumbling economics. Many believe that it is high time that the book-keeping by the industry is brought under a scanner. I am not saying that the sugar mills are indulging in unfair practices but it is certainly important to find out how come the mills are paying dividends when they claim to be running in losses? How come the personal assets of the owners are growing while the mills are sliding into red? How come the sugar mills, which I consider to be amongst the most pampered of the Indian industry, should be showing losses despite receiving inter-free loans, export subsidies and generous financial packages and exemptions?  

In March, when the Central Government had partially decontrolled sugar, which means the mills are no longer forced to sell 10 per cent of their produce at low prices to meet the requirement of the public distribution system, in an article in Tehelka (Bitter Politics of Sugar, April 20, 2013) I had said that the stocks of “cash-starved” sugar mills like Shree Renuka Sugars, Balrampur Chini Mills, Dhampur Sugar mills, Sakthi Sugars, Bajaj Hindustan and others had rallied high. In any case, the sugar mills benefitted to the tune of Rs 2,700-crore from the abolition of levy sugar quota. All that the government had done was to free the sugar mills of the burden, and taken the liability on itself. With an additional bounty of Rs 2,700-crore, I see no reason why the mills were unable to pay a better price to cane growers. 

The fault lies in the reluctance of mills in not modernizing and diversifying. Not only sugar that each mill produces, there are more than 24 byproducts which can be produced commercially, including ethanol and methanol. Why haven’t the private mills been able to make adequate investments into utilizing the byproducts? You can’t blame the farmers for that. Former Agriculture Minister Som Pal says each mill with a minimum crushing capacity of 2,500 tonnes should be able to generate 12 MW power. Using 3 MW for own consumption, at least a sugar mill should be able to sell 9MW to the grid.

Now take a look at an exhaustive study done by Dr T N Prakash of the University of Agricultural Sciences in Bangalore. His analysis shows how the contribution of farmers in the sugar economy is being deliberately underplayed. On an average, one tonne of sugarcane produces 100 kg sugar, 150 units of electricity and about 35 litres of alcohol (and I am not including other byproducts). Market values of these manufactured products exceed Rs 40,000. Aren't the farmers therefore justified in demanding even 10 per cent of the market value of what they produce? At Rs 280 per quintal that has been promised in Uttar Pradesh, are the farmers not being underpaid?  In any case, 85 per cent of the price they get has already been incurred on growing sugarcane. Where is the farmers fault if the sugar mills are not running efficiently? 

The mills can certainly pay. They have only formed a cartel to pressurize the state governments to pay a lower price to farmers. This will be suicidal for the sugarcane farmers’ as well as for the long-term viability of the mills itself. Leaving it to mills to determine the cane prices will lead to exploitation and further reduction in farmers’ income. The option before the Central government therefore is to reject the recommendations of the Rangarajan committee, and continue with the practice of fixing sugar cane prices for farmers.