Dealing with surplus production and inability to export due to low global prices, India is unlikely to provide financial support to its sugarcane farmers for their produce sold to sugar mills.
The government plans to pay Rs 55 a tonne to sugarcane farmers, while mills would pay the rest of the state-set price. Government officials insist that the move will boost the prospects of 50 million cane farmers and 524 mills grappling with mounting stocks of sugar, reports Reuters.
India, the world's biggest sugar producer after Brazil, is likely to churn out a record 29.5 million tonnes of sugar in the 2017–18 (October — September) season, up 45 percent from the previous year, hammering local prices down by more than 15 percent over the past six months.
Rising cane payment arrears
Kapil Choudhary owns a five-acre field in Kutubpur Datana village of Uttar Pradesh's Muzaffarnagar district. Like most other farmers in the region, he grows sugarcane.
Choudhary has an outstanding loan of Rs 5,73,000 on his kisan credit card. He isn't eligible for the state government's loan waiver as he doesn't fit in the category of small and marginal farmer. The last monthly instalment paid by him against the loan was in October 2017.
"I paid the instalment when mill owner released the dues six months back. But this season I haven't received anything for the sugarcane supplied to the mill. The mill owners have the money to pay their employees, but not for us." Choudhary said.
"My house also has to function. I put all my money in the crop. Now, if I don't get paid on time, how am I supposed to feed my family?" asked an exasperated Choudhary.
The problem faced by Choudhary is being faced by most sugarcane farmers across the country due to pending sugarcane dues.The drop in the prices of sweetener in local market has affected the profit margin of mill owners, making it hard for them to pay sugarcane farmers. The sugar mills currently owe Rs 15,000 crore to sugarcane farmers.
According to trade lobby Indian Sugar Mills Association (ISMA), the dues to sugarcane farmers is estimated between Rs16,000 to Rs17,000 crore following surplus production and crashing wholesale prices, reports LiveMint.
According to ISMA, in Uttar Pradesh, the largest sugarcane grower, mills owed farmers Rs 7,200 crore by March-end, followed by Rs 5,000 crore across Maharashtra and Karnataka, and Rs 4,000 crore across states like Bihar, Punjab, Uttarakhand, Haryana, Tamil Nadu, Gujarat, Andhra Pradesh and Telangana.
Payments to farmers are considered due when they are not settled within 14 days of supplying cane to sugar mills.
Cutting surplus stocks
With sugar production during the year 2017–18 estimated at 29.5 million tonnes and domestic consumption likely at 25 million tonnes, surplus production of 4.5 million tonnes have led to a crash in ex-mill sugar prices to Rs 30 per kg. According to ISMA, current ex-mill prices are lower than production costs by Rs 5–6 per kg.
To help liquidate surplus stocks, the centre had scrapped 20% export duty on sugar in March and made it compulsory for mills to export 2 million tonnes by September under the minimum indicative export quota (MIEQ). Earlier, the Centre had doubled the import duty on raw and white sugar to 100%, and placed limits on sugar sales by mills to improve domestic prices.
According to a report published by Financial Express, the mill owners in Uttar Pradesh are not enthused about the move as global prices remain low. They are demanding subsidy on export of sugar.
A miller having a sizeable presence in the state said that there would be a loss of around Rs 10,000 per tonne of sugar as compared to the current ex-mill sugar prices. "The loss would be higher as compared to the cost of production of sugar. If we export 1 lakh tonnes up to 30th September 2018 under DFIA scheme, we will incur around Rs 100 crore as the loss. Since exporters are allowed to import raw sugar under the DFIA after an average of around 18 months i.e. only after October 2019, he will carry a loss of this Rs 100 crore in his balance sheet for an average of 18 months, incurring an interest burden of another at least Rs 15 crore.
Therefore, the total loss that the exporter will need to recover from the DFIA imports after an average of 18 months would be `115 crore from 1 lakh tonnes of white sugar produced from the imported raw sugar.
In other words, such exporters would require a margin of at least Rs 12,000 per tonne or more in 2019–2020 to recover their loss incurred upto September 2018. This is huge and none of us would be able to take such a plunge unless we are offered some kind of support," he added.
Government's recent intervention
Seeking to prevent farmer unrest regarding cane payment arrears, Food Minister Ram Vilas Paswan on Tuesday asked the chief ministers of all major sugar producing states to issue strict directions to mills to clear their dues to cane growers and consider taking action against defaulting factory owners.
"The arrears for the current sugar season (2017–18) for all the sugar mills have risen considerably. This is a matter of serious concern for all of us. I, therefore, seek your intervention to issue strict directions to all sugar mills for immediately clearing of cane price arrears of sugar season 2017–18 and those of earlier years.You may also consider taking necessary action against the defaulter sugar mills where warranted," he said in the letter.
Paswan has written to chief ministers of Andhra Pradesh, Madhya Pradesh, Bihar, Odisha, Chhattisgarh, Punjab, Gujarat, Puducherry, Goa, Tamil Nadu, Haryana, Telangana, Karnataka, Uttar Pradesh, Maharashtra and Uttarakhand.