T he sugar industry in Maharashtra is once again in a crisis. The essence of the problem is simple—farmers have not been paid for the sugarcane crop that they had given the sugar mills. On January 12 and 13, offices of sugar factories in Satara, Sangli and Kolhapur districts were set alight by farmers who were frustrated at not having received even the first instalment of payment for the sale of their sugarcane. While the fires were quickly brought under control, some documents and equipment were damaged. Cases against identified and unidentified persons have been registered by the police.
The point here is not the vandalism or the arson but the fact that farmers were driven to do this in order to call attention to their desperate circumstances. While there are market-related explanations for the crisis, it is unacceptable that farmers have not been paid their dues.
The sugar pricing crisis affects about five crore farmers and about five lakh people employed in sugar factories. The most recent trigger was the December 24, 2018, memorandum that was presented to the Maharashtra Sugar Commissionerate by Raju Shetti, Member of Parliament and leader of the Swabhimani Shetkari Sanghatana, a farmers’ union.
The memorandum demanded that action be taken against sugar factories that had failed to pay farmers for their crop. The factories said they were unable to pay because they had been hit by the decline in sugar prices and had had low profit margins.
Sugar pricing
The fair and remunerative price (FRP) used in the sugarcane industry is set by the Union government. It is the minimum price that sugar mills are bound to pay farmers for their crop. The FRP works well when sugar prices are high but there is a hitch. The FRP method essentially means that it is the sugar companies that pay the farmers. Because of this link with the market, when sugar prices fall the farmer ends up either with less money or none at all.
To try and safeguard the farmers, there is also a minimum support price (MSP) in place. If farmers do not get a fair price, they can approach the Food Corporation of India which will offer them an MSP. This is generally higher than the market price so that the farmer derives some profit from the sale of his crop.
Of the 181 operational sugar factories in Maharashtra, about 70 have not paid their dues to farmers at all for the current season which goes on until crushing ends in March. According to the Sugar (Control) Order, all dues should be cleared within 15 days of the sugarcane being purchased from the farmer. By December 31, 2018, farmers should have been paid Rs.7,450 crore as per the FRP set by the Centre. But Maharashtra’s sugar factories paid out only Rs.2,875 crore, that is, less than 40 per cent of the dues.
The 2018-19 FRP was set at Rs.245 a quintal. Payment is frequently made in instalments, with the first one being given within 15 days of purchase of the sugarcane. The second instalment is paid when the crushing season draws to a close and the final payment is made during Diwali time. Farmers say that this is the first time they have not received the initial instalment. Gopal Ghade, a farmer who has been selling his sugarcane crop to a Satara factory for over a decade, said: “Mills often split the FRP payment over three instalments. We know that’s not fair but we’ve accepted it. But this time they have not even given us the first payment.” Krishna, another young farmer, said: “We are at the receiving end regardless of what we do. If the rains fail and there is no crop, we starve. If we get a good crop, the mills say there is a glut in the market and then also we starve. Is this justice?”
From a business point of view, this is how the system works. If there is surplus sugar in the international market, prices drop. When prices drop, banks hold back on extending the advances that are usually given to sugar factories. The factories say they are dependent on selling the sugar and are unable to get loans to pay the farmers’ arrears. This, says the Swabhimani Shetkari Sanghatana, is not entirely the truth. The Sugar Commissionerate held a meeting with some of the factories in which they pleaded that they were between a rock and a hard place. The Commissionerate said that it was unable to see that sugar may not have generated any profits, and pointed out that the sugar factories had done well from the sale of byproducts such as ethanol, molasses and rectified spirit. It is this scenario that led to the drastic action of burning the offices of the sugar mills. Shetti says adequate time had been given to the government to act on their promise of paying the farmers their dues. On January 1, Shetti announced that cane farmers would launch a “halla bol” agitation in which farmers would raise their voices against the injustice of non-payment. He demanded that the property belonging to defaulting factories be seized by January 28. Prior to this, Shetti and a delegation of farmers had marched to the Sugar Commissionerate on December 24, 2018, and handed over a memorandum seeking action against defaulting mills.
In an election year, the sugar crisis assumes an additional dimension. It becomes a pawn to be used against the ruling political elite of the Congress and the Nationalist Congress Party. Both parties have dominated agricultural politics in the State, especially sugar politics. The Bharatiya Janata Party has long tried to break into this closely guarded club, but with a few exceptions the factories are still controlled by the Congress and the NCP. In December 2018, NCP leader Sharad Pawar demanded that the State government give a special package of Rs.500 crore to the mills so as to clear the farmers’ dues, but this did not materialise. Chief Minister Devendra Fadnavis has asked the Centre to increase the MSP for sugar from Rs.29 a kilogram to Rs.31 a kg in a bid to placate farmers.
Union Minister for Road Transport Nitin Gadkari has given the crisis his own special twist. He suggested that farmers stop cultivating cane for sugar and instead give it for ethanol production. At a recent inauguration of a highway in Solapur district, where Prime Minister Narendra Modi was also present, Gadkari brought up the sugar crisis: “Sugarcane farmers are in a serious crisis. But this is not a problem created by us. It’s a problem caused by the global economy. The sugar produced in Brazil sells for Rs.19 a kg. This is destroying sugarcane farmers and sugar factories. The Prime Minister has taken a historic step to address this. From now on sugar will not be sold for less than Rs.29 a kg. And there will be a subsidy for sugar exports. We will wipe the tears of sugarcane farmers and the PM should get credit for this historic step.” Gadkari’s choice of Solapur was no accident. This southern Maharashtra district has close to 40 sugar factories and has been a Congress-NCP bastion for decades.
Statistics from the Indian Sugar Mills Association show the following drop in offtake (both domestic and export) over three seasons. In 2014-15, India produced 283.10 lakh tonnes of sugar and the offtake was 267.04 lakh tonnes. In 2015-16, the production was 251.25 lakh tonnes and the offtake was 264.53 lakh tonnes. In 2016-17, 202.85 lakh tonnes were produced and only 246.07 lakh tonnes consumed. In 2017-18, the production shot up to 324.79 lakh tonnes and although the offtake was more than in earlier years, it was proportionately still low. The State still has more than 50 lakh tonnes of sugar from 2017.
While there is no denying that there is excess sugar, it should also be understood that excess is not the root of the problem and leaving farmers hanging in the balance is certainly not the solution. Also, to offer ethanol as an alternative may be alright on paper but will need a new framework. The existing logistics favour the sugar industry because they have been set up and have been working for decades. One positive step is that the State has stopped issuing licences for new sugar factories.
With the election looming ahead, the government’s waffling over paying the farmers could prove dangerous. Sharad Pawar spoke of a “farmer’s revolt” while discussing the sugarcane pricing issue and while it may not come to that, it is certainly a tightrope act at the moment.
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