Cane pricing in UP: Yogi caught between Centre’s pressure & farmers’ demands
A letter by the Centre to the Uttar Pradesh state government asking for scrapping of state advised pricing (SAP) of sugarcane, has the sugar industry excited.
However, any move by the state government to scrap the SAP is expected to invite ire from sugarcane farmers who are already up in arms against rising input costs, stagnating price for the crop, and sugar mills which are known to sit on payments for months.
“We are watching the developments closely. And will not waste any time to organise the farmers if we grow suspicious of the government’s intentions,” says Jayant Chaudhary, General Secretary of the Rashtriya Lok Dal, an influential political outfit in Western UP’s sugarcane belt.
While most major sugarcane producing states pay farmers according to the Fair and Remunerative Price (FRP) fixed by the Centre, Uttar Pradesh still pays its more than 25 lakh sugar cane farmers according to the SAP, a price fixed by the state government.
While the Sugarcane farmers in UP received Rs 315 per quintal for the early variety of sugarcane unloaded at the mills, the FRP stood at merely Rs 255 per quintal. Add to it the premium which comes in post the implementation of the Rangarajan Formula, which entails that the farmer gets a price equivalent to 75 per cent of the mills’ average realisation from sale of sugar and its by-products, ethanol and power. Even then the chances are that the final price would be less than the SAP, something which will not go down with the sugarcane growers, an influential lobby of farmers in the state especially in Western UP.
Pressure from the Centre
The state government is under pressure from the Centre which wants it to abolish the SAP. A recent letter by the Consumer Affairs Ministry of the Government of India reads “The time may be ripe to implement the Rangarajan formula for sugarcane pricing”.
“Apart from the stable sugar price scenario, … for the sugar season 2017-18, the FRP of sugarcane at 10.61% recovery (reported recovery of UP would be about Rs 284 per quintal which is closely aligned to SAP presently prevailing in Uttar Pradesh,” the ministry wrote.
That the prices be rationalised and not be declared in this ad-hoc manner has also been a demand of the industry and its bodies including the India Sugar Mills Association. “I think that UP government will probably fall in line,” Abhinash Verma, Director General of Indian Sugar Mills Association told a newspaper explaining how this was a specific advisory.
That a move to move towards FRP linked pricing could be in the works, became apparent when Chief Minister Yogi Adityanath referred to how subsequent increases in the price of cane was breaking the back of sugar mill owners and how the impetus should be on increasing production and yield rather than increasing the prices. He said this while speaking at a Mango Festival in June.
A senior official of the state’s cane department however says that there has been no conversation on scrapping the SAP so far. The official also said that it will need political will and consensus despite BJP’s overwhelming majority at the state as well as the Centre. This senior official says that neither the chief minister nor the minister in-charge of the sugarcane department has spoken about any such plans so far.
Is it feasible?
Scrapping it is easier said than done keeping in mind the peculiar position of the Uttar Pradesh Sugar Industry. The Rangarajan Formula has been introduced in Maharashtra and earlier in Karnataka and other states. Uttar Pradesh, then under Akhilesh Yadav, had resisted the idea. Uttar Pradesh reportedly has over 20.5 lakh hectares under sugarcane production which is more than 40 percent of the country’s total produce. Last season, UP produced about 88 lakh tonnes of sugar, surpassing Maharashtra as the biggest producer.
“It is easy to implement it in Maharashtra,” a senior official of the cane department in the state says, explaining how the recovery from cane in Maharashtra is higher than in UP. The official further pointed out that the crop cycle in Maharashtra is longer -- 18 months -- against UP cane’s cycle of 12 months. While the recovery from cane in Maharashtra is upwards of 11.5 percent, in UP it has steadily risen from 9.4 percent in 2006-07 to 10.6 percent in 2016-17, according to the state government's estimates.
For the Rangarajan Formula to work in UP, sugar prices will have to stay upwards of Rs 3,800 per quintal, something which does not look likely in the coming year as Maharashtra reports good yield and UP has seen a considerable increase in sowing area of the crop. ISMA’s own estimates are of a 25 percent increase in sugar production. Even though sugar prices seem to be on upward swing since they tanked badly in 2015.
Add to it the fact that many of UP sugar factories are obsolete, with no capacity to either produce ethanol or power. And unlike Maharashtra, where much of the sugar industry is run by cooperatives, UP’s private mills have to make way for at least 20 percent margin to stay afloat.
The official says before scrapping the SAP, there is a need to narrow down the margin between the FRP and what the farmers are getting through the SAP. “This requires not just technological advancement of the mills but also of the crops and varieties sown,” he says, explaining how the department is trying to work on it.
Sudhir Panwar, a professor at Lucknow University and a former member of the state planning commission sees the SAP will remain stagnant at Rs 315, lest the mills come under humongous pressure because of a prospective bumper crop and low sugar prices, something which CM Adityanath also indicated in his Mango Festival statement.
Industry demands that as sugar prices are on a high and will remain stable, the state should follow the Centre’s advisory on FRP. "Rangarajan committee formula talks about the revenue realisation of the sugar mills, which is the ex-mill sugar price multiplied by the sugar recovery, multiplied by 75% and if you calculate that at even current ex-mill price of Rs 38 in UP, you will see that it will work out to around Rs305 of SAP, which is currently there. So no farmer is going to suffer," Abhinash Verma, the Director General of Indian Sugar Mills Association told a newspaper.
While industry claims that moving to the Rangarajan formula will solve the problem of arrears, Chaudhary says all these claims are fictitious. “The mills are sitting on more than Rs 2,500 crore when the sugar prices are close to Rs 40. Imagine the situation if the prices were to go south,” he says.
However, there is another possibility as well.
As prices are expected to fall, it would put further pressure on the mills. And given a situation in which farmers are complaining for stagnant prices and increasing input costs, it may give the state government some elbow room to rationalize the transition to the FRP model. However, it would need exceptional courage on the part of the Yogi government.
Farmers in the sugar belt in West UP say any move which leads to them getting lesser money for their sugarcane will be resisted. "They will not be able to do it. The farmers will not accept it," a local BJP leader from Western UP who also heads a local cane committee says. One of the ways the BJP made inroads into the cane belt was also through demanding that UP farmers get Rs 400 a quintal for their sugarcane and the promise that cane growers will get payments within fourteen days.
On the ground, the initial excitement about Yogi Adityanath among sugarcane farmers is dwindling fast. "It was good in the first 20 days of the government when it felt like Chief Minister means business. Now everything is back to normal," the BJP leader says. For example the Modi group-owned Malakpur sugar mill in Baghpat still owes Rs 300 crore to the farmers.
Chaudhary says whatever the industry or the mill owners may claim, a strict government is all you need to make the mill owners pay up on time.
The RLD leader meanwhile questions the Centre’s excitement on scrapping the SAP. “The right of the state to assign SAP has been upheld by the Supreme Court in 2004,” he says.
He warns that the state law cannot be amended in the name of reform. “Without large scale discussions with farmers and other stakeholders, none of this is going to be palatable,” he says pointing to the time when the Rangarajan Formula was initiated in Karnataka without consultations, something which led to protests.
First published: 24 July 2017, 19:35 IST