The farmers will continue to bite the bitter pill unless politicians divorce themselves from the sugar industry and mills are forced to pay arrears
Sugar has been the most pampered and favoured farm sector since independence. “The sugar lobby keeps saying they are in the loss-making business. Then why are sugar stocks always up on the Bombay Stock Exchange?” asks Devinder Sharma, an agriculture policy expert. Though acreage and production have been increasing, sugar mills have been getting soft loan support and other sops from the government for the past 10 years. Yet, arrears have not been paid to farmers.
However, the sugar lobby wants more. “If government gives us loans at zero per cent interest, we will able to pay the arrears on time,” says Abinash Verma, director general of Indian Sugar Mills Association (ISMA), which also wants the government to reduce the Fair and Remunerative Price (FRP) which they say is causing revenue loss. The truth is that the sugar industry is hiding its profits.
What’s more, there are also allegations that even soft loans to the sugar industry have been misused. “Soft loans are a farce,” says V M Singh, a farmer leader of Majdoor Kisan Sangthan. “There is a case where a soft loan of Rs 1,162 crore was diverted by the Bajaj Hindusthan Sugar Mill Ltd to set up a power plant in Lalitpur, Uttar Pradesh,” claims Singh.
But sugar is only a part of the income for mills. Sugar mills only place production of sugar and its trade in the public domain and hide income from its by-products. “About 70 per cent income comes from sugar and rest from its by-products,” says Prakash P Naiknawade, managing director, National Federation of Cooperative Sugarcane Factories (NFCSF), New Delhi.
There are 26 byproducts of sugarcane. Take for instance ethanol, a byproduct. Government policy has set the target of blending at 20 per cent with fuel. In 2018, the Union government accepted the demand of sugar mills and fixed Rs 52 per litre for premium ethanol derived from B-heavy molasses and Rs 46 per litre from C-heavy molasses. Now sugar mills are planning to supply 2.45 billion litres of ethanol to oil manufacturing companies which is around 7 per cent blending. This means in the coming years, mills would venture into this avenue to get guaranteed price.
The production cost of sugar is Rs 35 per kg which can produce 0.6 litre of premium ethanol. So, one litre of premium ethanol costs Rs 52. If a mill diverts their juices from B-heavy molasses, they will get their cost of sugar. But mill owners deny any income from ethanol. “Ethanol production is our butter, not bread, so we don’t count its income,” says Verma.
The industry has been demanding deregulation of the sugar industry. But huge financial support from governments also exposes its double standards. The C Rangarajan Committee, set up by the UPA government in 2012, recommended complete decontrol of the sugar industry in 2013. The UPA government accepted its recommendations and deregulated it; but it kept the right of fixing FRP with itself.
It also removed the stock limit barriers and disbanded the “levy sugar” scheme. Under this scheme, every sugar mill must give 10 per cent of discounted sugar to the government to be distributed under the Public Distribution System. In its manifesto for the 2019 general elections, the BJP has promised to reintroduce “levy sugar” scheme, and this will help the industry to trade surplus sugar inventories.
“There have been two occasions — in 1977 and in 2013 — when the governments removed the stock limit accepting the industry’s demand for deregulation but they again demanded for regulation of stock limit,” says Panwar. Panwar explains that in 1977, when Janata party government came to power, it accepted the industry’s demand of removal of stock limit. But the following year, in the wake of falling market prices, the government revoked its decision.
Despite all the financial support, the industry has shown little interest to pay farmers for their produce. A delay in payment can multiply farmer’s debt. A farmer gets a loan on high interest to invest in a crop. Sugarcane has a one year gestation period. “Mills delay payment and when they do, they don’t pay interest for the delayed period,” says Sudhir Panwar, a sugarcane farmer leader from Uttar Pradesh. “When farmers demand payment from mills, the government comes up with a soft loan scheme at interest rate which would be 7-10 per cent lower than the market rate,” he says.
So on one hand, farmers end up paying high interest on their investment, and on the other, sugar mills get soft loans paying little interest. And mills earn interest money on the arrears they have to give to farmers. For instance in Uttar Pradesh, the interest on arrears is Rs 2,750 crore since 2012-13. According to the Directorate of Sugar, Ministry of Consumer Affairs, Food & Public Distribution, sugar mills have an outstanding amount of Rs 2,081 crore as of March 2019 for loans taken under different schemes. The National Cooperative Development Corporation of India provides thousands of crores of rupees every year to cooperative mills for development and modernisation. In 2018-19, it provided Rs 2,229 crore.
“There is an urgent need to conduct an independent audit of sugar mills to know how they are managing the money,” says Sharma.
There are other fundamental problems. About 16 million litres of water is required to cultivate sugarcane on a 1 hectare plot, which leads to the production of 8.5 tonnes of sugar. So 1,900 literes of water is required to produce 1 kg of sugar.
Therefore, it makes ecological sense not to cultivate sugarcane in water-stressed states such as Maharashtra and Karnataka. It is pertinent that the entire political establishment, as well as judiciary, take note of this crisis and take corrective steps to alleviate the suffering of millions of sugarcane farmers.
(This article was first published in Down To Earth's print edition dated May 16-31, 2019)
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