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Sugar sops and the politics behind it: How much can the government offer?

Between May and September 2018, the Union Cabinet Committee on Economic Affairs (CCEA) met approximately 16 times and in six of them (around 38%), a decision related to the crisis engulfing the country’s sugar sector was taken.

From hiking the Fair and Remunerative Price (FRP) of sugarcane with a new recovery-based formula to raising the price at which Oil Marketing Companies (OMCs) will buy ethanol, the Central government seems to be trying everything under the sun to ensure quicker payment of mounting sugarcane dues to farmers. The latest estimate of the total dues is close to Rs 130 billion.

Alongside the Centre, the state government of Uttar Pradesh too has been working on different packages and announcing new incentives to lower sugarcane dues.

Of the almost Rs 130 billion of sugarcane dues, over 70 per cent pertains to Uttar Pradesh alone, where sugar and sugarcane is not only one of the biggest organised industries but is also a politically important crop, particularly in the highly fertile western part of the state.

Unofficial estimates and experts say that in 35-38 out of the 80 Lok Sabha constituencies of Uttar Pradesh, sugarcane plays a big role in varying degrees and any slip-up in payment here could make or mar the fate of any political party.

In 2014 general elections, BJP comprehensively won in most of these seats, but as the results of subsequent by polls to Lok Sabha and Vidhan Sabha in west UP showed, the party’s grip among sugarcane farmers was slipping and mounting dues was cited as a main reason for the discontent.

Though caste and religious factors might have played a big role in ruling BJP’s defeat in those by polls, local farmers and experts said the impact of sugarcane dues can’t be ruled out.

There are six sugar mills located in Kairana Lok Sabha constituency, which BJP lost in a bypoll held in May, and the entire west UP's economy rests on it.

In 2017-18 crop year, till mid-May, sugarcane arrears amounting to almost Rs 8 billion hadn’t been paid to the farmers by the six mills located within the constituency.

Clearly, the message seems to go out that unless steps are taken to address the issue of sugarcane dues, the party could feel the heat from voters.

A big reason for the rise in sugarcane dues is surplus production amid weak international market.

New high yielding sugarcane varieties now occupy almost 50 per cent of the state’s area under the crop, which has not only made it the country’s biggest sugar producer surpassing Maharashtra but also vastly improved recovery from cane.

In the coming years too, there is little possibility of any significant drop in sugarcane acreage in the state as despite all the troubles. Not only it still remains one of the best-paying crops, but it can also withstand weather changes and attack from stray animals, which has become a big problem in west UP.

Unless big measures are taken to solve the problem, trade and industry sources said, cane arrears could reach an untenable amount of over Rs 400 billion by March 2019 - right before the general elections. Something which the Modi government could ill-afford to ignore.

But, the big question is how far will the slew of measures announced over the last five months help in clearing the cane dues and prevent them from spiralling over. 

Several of the measures are being questioned for their effectiveness. The most recent being the UP government’s decision to announce a soft-loan package of Rs 40 billion for sugar industry by taking a commitment that it will be used to make payments to farmers.

A section of the industry says that a big letdown of the package is the direction to return the loan by March 2019 from revenues earned.

“As sugar prices aren’t expected to rise significantly, how can I repay the loan by March 2019,” a senior industry official remarked.

He said another condition of the soft-loan is that all encumbered properties in which there is no lien will have to kept as collateral for availing the loan.

“Already, much of the sugar is pledged with the banks, now what else can we give as collateral," the official said.

With sugarcane arrears expected to play an important role in coming elections in politically important state of UP, it remains to be seen how far Centre and state government goes to clear them. 

Some major steps taken by Central government to bail out sugar mills and cane farmers in last few months:
  • Doubled import duty on sugar to 100 per cent;  scrapped export duty on it.
  • Made it compulsory for millers to export two million tonnes of sugar.
  • Announced Rs 85 billion package for the industry that included soft loans of Rs 44 billion to mills for creating ethanol capacity.
  • A special assistance of Rs 5.50 per quintal of cane crushed, amounting to Rs 15.40 billion to mills.
  • Fixed Rs 29 a kilogram as the minimum selling price of sugar.
  • Raised the procurement price of ethanol produced directly from sugarcane by over 25 per cent. For those produced from B-heavy molasses (also called intermediary molasses) was hiked to Rs 52.43 a litre from Rs 47.13 a litre. 

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