Sugarcane Farmers’ Ailments: Road to Healing

Dues to sugarcane farmers have remained stubbornly high despite the government announcing measures in the past few years to provide alternative revenue streams. According to a senior industry officials, as the 2019-20 sugar season (October September) draws to a close, around ₹ 216,000 crore remains to be paid to farmers for the sugarcane purchased in previous years. Of this, about ₹ 3,11,000 crore is due to be paid to farmers in Uttar Pradesh alone.

The reasons - Part 1

One reason , according to sugar industry sources, for dues not getting cleared, is a mismatch between the cost of production and the rate at which sugar is selling in the market. At present, the all-India average cost of producing ₹ 1 kg of sugar is 35-36 and that includes depreciation and interest on loans taken from banks, while the all-India average realisation so far in the 2019-20 season is around ₹ 32.25 a kg.

"With sugar accounting for 80 – 85per cent of the annual revenues of mills, a loss of ₹ 2.75-3.75 per kg is bound to impact their earnings and cash flows and, with them. their ability to pay farmers," Abinash Verma, Director General of the Indian Sugar Mills Association (ISMA), told the correspondent.

The Centre mandates that sugar mills will not be allowed to sell sugar below ₹ 31 per kg in the 2019-20 season something that mills wants to be increased to at least ₹ 33 per kg. The NITI Ayog recently called for increasing the average minimum sale price by 2 per kg.

The reasons – Part 2

The second reason for rising dues this time, according to sugar mills, is a mismatch in cash flows. Sugar farmers are paid for five months an year that is during the peak harvest time, when the cane is brought to the mills. But the sugar is sold over 15-18 months. Hence, to address the problems arising out of this time gap, sugar mills need working capital from banks. But banks are reluctant to provide working capital against the entire stock and insist on looking at the turnover of the sugar mills. This intense scrutiny further dries up the cash flow. There are some sugar companies, both in the private and cooperative sectors, that don't get working capital from banks because of their poor balance sheets and it is these that have made the least payment to sugarcane farmers in 2019-20. They are also the ones who have the bulk of the dues.

The reasons - Part 3

The third reason mills are unable to pay farmers on time is the delay in the release of funds that accrue to them from the government by way of subsidies and services they provide. Sources said ₹ 8,000 crore was stuck with the government on account of unpaid buffer subsidies, export subsidies, and interest subvention on soft loans mills had taken in previous years.

If this ₹ 8,000 crore is cleared by way of supplementary demand for grants in the Monsoon Session of Parliament or otherwise, farmers dues will straightaway come down. In addition to Centre's dues, some state governments too have unpaid power dues of 1,500 crore to be paid to sugar mills. Mills say a quicker option could be to raise the minimum support price by ₹ 2 per kg. this would raise the value of some 12 million tonnes of unsold sugar stocks lying with the mills by ₹ 2400 crore. Will this not push up the prices ? Mills say two years ago sugar was retailing at ₹ 37- 38 per kg and there were no consumer complaints.

The Other Take

Sudhir Panwar, a former member of the UP Planning Commission and a long-time observer of India's sugar economy, says mills withhold due sugarcane payments so that farmers get agitated and the firms are able to squeeze concessions and rebates from the Centre and states. This looks like a well-planned strategy to deny farmers their dues."

Case Studies (Uttar Pradesh)

Lucknow: Over the last 42 days, Naveen Rathi, a sugarcane farmer, has not received a single penny from the state-owned sugar mill that he had supplied to,causing him immense distress.

Rathi had supplied raw sugarcane worth Rs 3.5 lakh to the Uttam Sugar Mill in Khaikheri village of Muzaffarnagar district in batches, between December and mid-March. He has only received a total of Rs 1 lakh in installments.

"The last installment of Rs 20,000 was paid to me on January 22," Rathi told painfully. He said that the mill owner cited a drop in consumption of sugar due to the lockdown and weak demand at grocery shops as the reason for not paying him. Rathi added that mill owners said they were not in a position to pay the farmers at the moment.
Rathi said that most farmers who had received their last installment of money owed to them by the mills had already used it to repay loans and other dues, and now had nothing left to feed their families with during the shutdown.

Sanjeev, another sugarcane grower from Vailly village in Bhudana tehsil from the same district, received only Rs one lakh out of the five lakhs that the mill owed him. "I do not know when I will get the rest of my dues. I have been borrowing money from people to feed my family," he said, declaring that was reconsidering cultivating sugarcane in the future.

Sugar sales have fallen drastically due to the nationwide lockdown imposed by the government for preventing the spread of the deadly COVID-19. Hotels, restaurants and malls, major buyers of the product, have also been shut as a result. Farmers from the sugarcane belt are reeling under a severe cash crunch with their dues yet to be cleared by the state government.

Rakesh Tikait, national spokesperson of the Bhartiya Kisan Union (BKU), said that the government should help farmers instead of businessmen and corporates. “At a time when a lockdown has forced an entire country to shut down, business houses are looking for opportunities to maximise their profits. At present, the entire economy of the country is being run by farmers. But, as always, the government is not concerned about sugarcane growers. The government could also take a loan from a bank and release the payments which are due to farmers, but they rather help businessmen even in this grave situation when farmers are in dire need,” Tikait told the reporters.

According to the Indian Sugar Mills Association (ISMA), arrears to the industry and farmers have reportedly mounted to Rs 18,000 crore. The ISMA report mentions that sugar sales in March and April this year had declined by 10 lakh tonne.

The Centre had imposed a complete lockdown from March 25, due to which all establishments including hotels and restaurants were closed. In such a situation, the big buyers of sugar such as confectioners, bakeries and refrigerant companies went missing.

According to ISMA’s Director General, the industry had had problems selling sugar over the past one and a half months. “These problems have come because the demand for big buyers of sugar like cold drink, ice cream, cake, bakery, juice producers has declined,” he reportedly said.

However, BKU leader Dharmendra Malik disagreed that the demand for sugar is the problem. “It is just an excuse so that they can take another year to pay the farmers. While there is no doubt that the demand for sugar has decreased, the mill has stored tonnes of sugar courtesy farmers during the season and once the lockdown lifted, the demand for sugar will definitely be high. But the mill owners do not want to pay farmers their dues," he added, asking that despite the government keeping sugar in the list of essential commodities and distributing it among the poor, “how can the demand for sugar be so weak?”

Malik explained that the sugar industry also produces ethanol, and that electricity is generated from sugarcane bagasse. “Alcohol is produced from sugarcane and its raw material is used for making paper then why can the government not pay the farmers from the money obtained by selling all this if the demand for sugar is less?" he asked.
According to BKU, the graph of pending dues to sugarcane farmers is gradually rising and stood at nothing less than Rs 16,000 crore in Uttar Pradesh.

How far have you gone ? A quick look

Pre Q:

The main problem/problems of sugarcane farmers is / are?

(a) Less demand
(b) Underpayment by sugar companies
(c) Government’s indifference
(d) All of the above

Mains Q:

“Government has not taken major steps to reduce the woes of sugarcane farmers” Comment briefly. What major steps need to be taken by the Government for upliftment of sugar industries?