In debt trap

Published : Apr 01, 2015 12:30 IST

Mawana Sugar Works in Mawana.

Mawana Sugar Works in Mawana.

ALL ROADS used to lead to Mawana town in Meerut district of western Uttar Pradesh in early March every year. Farmers took their tractor and truck-loads of sugarcane, harvested after one full year of hard work, to one of the biggest sugar mills in India, Mawana Sugar Works. The big farmers made big profits, but the small farmers, too, earned enough. The Mawana sugar factory was so famous that it adopted sugar made in other mills under its own brand name. Today, both the farmers and the sugar factory owners remember this success story as a distant dream. The symbiotic bond that existed between them has today turned sour. Farmers are agitating in front of the factory for non-payment of dues and the factory says it is on the verge of bankruptcy. The factory has been beset with the problem of underproduction and weakening sugar prices.

For many years, the Centre decided the prices of sugarcane through the Commission for Agricultural Costs and Prices (CACP) and the State government added some bonus to the minimum support price (MSP) by declaring a State-Advised Price (SAP). The sugar mills had the obligation to buy from the farmers and pay the minimum amount due to them—a good 70 per cent of the value of sugar and its by-products—in a time-consuming but a secure process.

The farmers grow sugarcane despite the fact that the crop requires higher investment and greater dedication in terms of farmwork than paddy and wheat. The bigger advantage is that with one-time sowing, sugarcane yields two crops in two years. The farmers are eager to put in that extra work because of the profits the crop yields and a growing demand for sugarcane in non-food and non-beverage sectors such as renewable energy.

The Fair and Remunerative Price (FRP) system worked well for both the farmer and the sugar mill. The government, while controlling the prices, devised a release mechanism, which maintained a balance between the intake of sugarcane and the sale of sugar. This ensured that sugar prices never went below a certain price level in the market. This benefited the farmers as the government controlled sugar prices in the domestic market keeping in mind the input costs in cultivation. Depending on the production of a given year, the government released export and import limits, thereby ensuring that sugar prices did not fluctuate because of the pressures of a volatile market. Sugar mills had the obligation to sell levy sugar to the government below the market price in lieu of their taxes. This helped the government’s public distribution system. In the past two years, however, everything changed when the United Progressive Alliance government at the Centre decontrolled the sugar sector on the recommendations of the Rangarajan Committee Report, 2012. The committee, in order to deregulate the Rs.80,000-crore sugar sector to boost growth, recommended the scrapping of the FRP. This freed the mills of the obligation to provide levy sugar and ended the system of release mechanism, while it retained the clause that the mills should buy from the farmers. This led to a definite growth in the sugar sector, with sugar mills demanding more sugarcane from farmers. As a result, farmers cultivated more sugarcane. Because of the increased availability of sugarcane in the market and increased sugar production, the price of sugar fell drastically. “Our sugarcane sold at Rs.320 a quintal last year, but we get only Rs.240 a quintal now. We are not able to cover the costs,” said Ajay Kumar Singh, a sugarcane farmer in Khalidpur village in Mawana.

A farmer invests about Rs.1 lakh to cultivate sugarcane in one acre (one acre is 0.4 hectare) in the first year of the crop. On an average, he harvests around 300 quintals. If the present price of sugarcane is taken into account, each farmer will incur a loss of at least Rs.15,000 an acre. In the second year of the crop, a farmer spends only around Rs.50,000 and makes a meagre profit, which is not sufficient to clear his debts. Since the price of processed sugar has decreased from Rs.3,600 a quintal in 2014 to Rs.2,600 in 2015, sugar mills are finding their profit margins reduced drastically. The sugarcane policy is consumer-centric and beneficial to the economy.

“Greater availability of sugar in the market at reduced prices has benefited the consumer undoubtedly. But one must look into the larger systems of production. Sugarcane farmers are driven to death; the mills are not making adequate profits to sustain themselves. In the long term, this can prove disastrous for the economy. However, if the prices are controlled, the situation can be redeemed. A consumer can pay Rs.2 extra but the farmer cannot bear huge losses as farming is the only source of income for him,” said Sudhir Panwar of the Kisan Jagriti Manch, a Uttar Pradesh-based farmers’ trade union.

Attempts to decontrol sugar prices have led to similar crisis situations before despite the fact that the sugar sector has witnessed an annual growth of 7 per cent following the delicensing of sugar mills in 1998-99. In the early 2000s, attempts by the A.B. Vajpayee government to deregulate the sugar sector by doing away with the release mechanism led to such a crisis, so it was reinstated. But, the present government sees this as an opportunity to liberate the sector of regulatory mechanisms. Sugar mills see deregulation as a positive step as it will give them more bargaining power. They see the present crisis as transient and want the government to free them of all obligations towards the domestic market and farmers.

Almost every farmer this correspondent met was heavily in debt, owing not less than Rs.8 lakh. Jats, the biggest farmers of the region, feel cheated by the Narendra Modi government. The community voted for the Bharatiya Janata Party in the 2014 Lok Sabha elections. Reports of farmers’ suicides have been pouring in from different quarters of western Uttar Pradesh in the past few months. The crisis may deepen if the government does not take steps to regulate the domestic market.

Ajoy Ashirwad Mahaprashasta in Mawana

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