It may be a good idea for the Indian government to intervene and work out a uniform proposal for cane price in UP, similar to the linkage formula already in operation in Maharashtra and Karnataka

The new sugar cane crushing season is scheduled to start in about two weeks' time. Most cane farmers would start bringing in the freshly cut canes for crushing in the mills in October onwards, though, in most producing areas, such as Uttar Pradesh, Maharashtra and Karnataka, farmers have long overdue arrears to collect from the mill owners.

India produces about 24.3 million tonnes of sugar, 50% of which comes from UP and the balance between Maharashtra and Karnataka. Of these, both Maharashtra and Karnataka have already enacted laws to adopt the revenue sharing model whereby a linkage formula will determine the price of cane at 70% of the revenue realised from sugar as primary product or at 75% for sugar alone, giving 5% weightage to by-products. This system is prevalent and practised without any difficulty in most countries in the world.

In Uttar Pradesh, however, the State Advised Price for sugar cane is unrealistic, as the cane yields have gone down and sugar recoveries have also remained flat or low in many areas of the state. Millers have not paid the farmers for the cane and the arrears have been piling up leading to untold suffering of the farmer, who is forced to obtain loans from moneylenders at exorbitant rates, to carry on his day to day expenses.

In order to overcome various difficulties faced by the sugar industry in general, and UP in particular, the Union Government made several moves to improve the situation. As demanded by the industry, the first step was to increase the import duty of sugar to 25%. The second was to increase the export subsidy from Rs3,300 to Rs3,371 per tonne. The third was to give soft loans to the extent of Rs6,600 crore and finally recommended the increase in ethanol blending to 10% from 5% which was applicable earlier.

UP had cane arrears of Rs14,095 crore when the new government took over. This has now been brought down to Rs7,760 crore and arrears to cane farmers is still not settled completely.

It has been reported in the press that Union Food Minister, Ram Vilas Paswan has asked the UP government to take serious action against defaulters who have not yet settled the farmers’ dues. He appears to have assured them that should the millers approach for additional soft loans, this could also be considered favourably, if there was an assurance that the funds would be used to directly settle the long overdue payments of the cane growers.

In the meantime, in the absence of a national cane policy, private millers (in UP) have decided not to start crushing cane from October. More importantly, they have declined even to attend the UP Sugarcane department meeting, called for "cane reservations".

A few weeks ago, it may be recalled, that 66 of the 95 private sugar mills had given suspension notice to the UP Government that they cannot start their crushing operations for 2014-15, starting in October. These 66 mills account for 66% sugar production in UP and supply 3/4th of the ethanol and co-generated power. If this is not settled immediately, the farmers will struggle to find any buyers for their canes that would line up in front of mills with nobody to receive them.

According to ISMA - Indian Sugar Mills Association - raw sugar exports for the current season ending September is expected to reach 2.45 million tonnes, slightly higher than last season by 348,000 tonnes. However, due to increase in sugar production in Brazil, Indian exporters will face serious challenge to export at the current international price level of $320. For example, the ex-factory price in Maharashtra hovers around Rs28,000 per tonne, while it is Rs29,500 to Rs30,500 in UP. The export subsidy of Rs3,371 is valid for August and September shipments only and new rate for October/ November has not yet been announced. In any case, if export should continue, it cannot be viable at the current subsidy rate of Rs3,371 and industry is already demanding a revision to Rs6,000.

Iran, Sudan and Somalia were top importers of Indian sugar and it remains to be seen if serious competition from Brazil and others do not come in our way of exports.

Karnataka contributes about 18% of Indian sugar production and has an active Sugar Control Board. The sugar industry in this state too, has similar problems of delays in settling arrears to farmers, which is said to be Rs2,300 crore. According to K Shantakumar, Convenor of Sugar Cane Growers Association, they have made a petition to the government as to why they cannot directly settle the farmers' dues and later on recover from the millers? If this situation continues, they have told the government that the farmers would decide to take a crop holiday and go in for some cash crops! Meantime, farmers are awaiting the cane price announcement from the Sugar Control Board for the 2014-15 season.

For the sugar industry to survive, particularly in UP, it is imperative that urgent steps are taken by the State Government to sort out the arrears issue urgently, and also devise means to ensure that in the new crushing season, farmers do not have to run from pillar to post to collect their dues. Also, it may be a good idea for the Union Government to intervene and work out a uniform proposal for cane price in the manner of the linkage formula that is already successfully in operation in many countries, including in our own states of Maharashtra and Karnataka.

Any delays will cause serious harm to the industry.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)