Bitter reality: Modi is wrong, sugar mill owners are taking farmers for a ride
Listing his regime's achievements from the Red Fort on Independence Day, Narendra Modi claimed that 99% of the money due sugarcane farmers had been paid. Ironically, just two days earlier, Rashtriya Lok Dal's Chaudhary Mushtaq had informed the Uttar Pradesh assembly that sugar mills owed Rs 2116.97 crore to the farmers.
Previously, addressing a rally in Saharanpur on 26 May to mark the second anniversary of his government, Modi had claimed the amount owed to sugar farmers by the mills had declined from Rs 14,000 crore to Rs 700-800 crore during his tenure. The claim was contested by the Uttar Pradesh Sugar Mills Association, which said the mills had still not paid Rs 5,795 crore.
Modi's false claims were intended to woo sugarcane farmers of western UP ahead of the assembly election early next year. But does it behove the prime minister of the country to obfuscate the truth so brazenly?
Non-payment of dues by the mills is not the only problem afflicting UP's sugarcane growers. The law mandates the mills to pay interest on the pending amount if they fail to make the full payment within 15 days of purchase. Last year, however, the state government passed an order to waive off this interest.
According to VM Singh, the convenor of the Rashtriya Kisan Mazdoor Sangathan, the Akhilesh Yadav government has waived off Rs 500 crore in interest payment owed by the mills during 2011-12, 2012-13 and 2014-15. The government allowed the mills to pay the money due farmers without interest under pressure from sugar barons, Singh alleged.
The prime minister's proclamations and the Akhilesh regime's benevolence towards sugar mill owners suggest they are least bothered about the plight of around 50 lakh sugarcane farmers of UP. Eight months have passed since the work of sugarcane crushing began but the farmers are yet to receive Rs 2,000 crore, according to the UPSMA.
VM Singh, who has fought several legal battles for sugarcane farmers, said growers across India have been facing an "acute financial crisis for the past two decades".
Mills reluctant to pay
The total debt of sugarcane mills touched Rs 21,800 crore in April last year, after which the central government announced a slew of sops for them - an interest-free loan of Rs 6,600 crore and a hike in import duty from 25% to 40%.
Of the loan amount, UP's sugar mills were to receive Rs 1,200 crore. This was in addition to the UP government's relief package of Rs 2,100 crore for the mills announced in September 2015. It also allocated Rs 1,300 crore in this year's budget for payment of dues to the sugarcane farmers.
Still, farmers are awaiting payment running into thousands of crores. "Most mill owners are also involved in other trades. They divert the compensation received from the government to other business interests," alleged Rakesh Tikait, spokesperson for the Bhartiya Kisan Union.
Reminded that the mill owners have claimed heavy losses, Tikait replied, "They mint money through other businesses. They should close down the mills if they feel they are not making profit."
A total of 117 sugar mills operating in UP have bought sugarcane worth Rs 17,996.73 crore at the minimum support price of Rs 280 per quintal since October last year. Of this, the co-operative sugar mills account for Rs 1,811 crore worth of purchase and those run by the sugar corporation for Rs 91 crore.
Not that co-operative and corporation mills are any better when it comes to paying dues. Still, they have managed to make full payments for purchases until 25 July this year, clearly because of the impending Assembly election. The state government has promised stringent action against the defaulter private mills, but it remains to be seen if it has any effect.
Devendra Sharma, an agricultural analyst, believes that farmers are not on the priority list of the government. "There is no reason mill owners should delay payments. Even the courts have ordered them to pay dues within 15 days of the procurement. But the government is lenient with them," he said.
Sharma wondered where the interest-free loan provided to the mill owners had gone. "The union government is making all efforts to pay thousands of crores of rupees to its employees until 30 August as per the recommendations of the seventh pay commission. Why is there no such urgency in the case of sugarcane farmers," he asked.
Who's making money?
Based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), the central government had decided to keep the Fair and Remunerative Price (FRP) of sugarcane for this year at Rs 230 per quintal. It essentially means that sugar mills cannot procure sugarcane at a price lower than this.
However, the state governments can fix their own state advised price (SAP) over FRP. The differential between FRP and SAP often becomes a point of contention between the mill owners and the states. In 2012-13, UP had raised the procurement price by 17% to Rs 280 per quintal. The same rate applies this season.
Sudhir Panwar, a member of the UP State Planning Commission, contended that "the state government is paying an additional amount of Rs 28 to the mill owners and Rs 12 to the farmers for each quintal over FRP" to make up the difference.
Farmer organisation claim the input cost for sugarcane is Rs 350 per quintal, but they only get Rs 280 in return and that too after long delays. The mill owners, on their part, claim the current prices are not viable for them and they are forced to sell at prices lower than the production cost.
The mills though benefit from sugarcane by-products as well, the farmers contend. Crushing of a quintal of sugarcane yields by-products worth about Rs 500. The mill owners claim this is an exaggerated estimate and they can pay Rs 280 per quintal only if at least 10 kg sugar is produced from a quintal of sugarcane, which is rarely the case.
The mills also earn money from molasses produced during sugar production as it is used to make liquor. The mill owners are required to give at least 15% of the molasses produced to country liquor manufacturers. They are, in fact, bound by law to provide at least a quintal of molasses to these liquor makers for every nine quintals they sell on the open market.
Ethanol to the rescue?
In November 2012, the Cabinet Committee on Economic Affairs approved a proposal to mix 5% Ethanol in petrol. The Ethanol was to come from the sugarcane by-products. The proposal has not been implemented yet.
This fiscal, though, oil companies are planning to buy 134 crore litres of Ethanol - and this will add to the profit of the mills. Currently, Ethanol is imported from countries such as the US and Brazil at Rs 30 per litre, but the Indian mills will sell it at Rs 40 per litre. It remains to be seen whether some benefit from this will reach the farmers.