Crushing season: If govt paid-up, farmer dues owed by sugar mills could halve

This means mills earn around Rs 356.8 from every quintal of sugarcane they purchase; based on the Rangarajan formula, mills were to pay farmers 75% of what they earned, or Rs 267.6. (File image)

As the amount owed by sugar mills to farmers crosses Rs 17,300 crore across the country, the knives are out for mill-owners. While this may be justified at the level of some individual mills — seven mills in Uttar Pradesh have paid farmers less than 30% of what they owe — at an all-India level, the central and state governments owe sugar mills over Rs 9,400 crore; the bulk of this, around Rs 8,300 crore, is that owed by the centre under various heads like a production subsidy, a buffer stock subsidy and even interest subvention. Another Rs 1,100 crore is owed by states that bought electricity produced by sugar mills but have yet to pay for it.

In the case of a state like Uttar Pradesh where around Rs 11,300 crore is owed to farmers, the dues to some of the better mills are close to 75% of what the mills owe the farmers.

Dwarikesh Sugar, for instance, owes farmers Rs 180 crore — it has cleared 85% of its dues — while the government owes it Rs 135 crore.

Triveni Engineering, which has cleared 78% of its dues, owes farmers Rs 606 crore, but is owed `400 crore by the central and state governments.

Of the seven UP mills that have cleared less than 30% of their dues, though, government dues are just around a tenth of what they owe farmers. These mills who typically don’t get much working capital from banks — they can clear farmer dues only after they sell the sugar — owe farmers Rs 1,270 crore and are owed Rs 130 crore by the central and state governments.

Another factor ignored while talking of farmer dues is the role of government policy which has ensured the sugar industry is perpetually bankrupt. Right now, average prices at which sugar sells is around Rs 32 per kg, and the average recovery rate is 11.15% (including realisations from ethanol production). This means mills earn around Rs 356.8 from every quintal of sugarcane they purchase; based on the Rangarajan formula, mills were to pay farmers 75% of what they earned, or Rs 267.6.

Based on the Fair and Remunerative Price (FRP) of Rs 275 (at a 10% recovery rate) that was set by the central government for the current marketing season, the mills need to pay farmers Rs 306.6 per quintal assuming an 11.15% recovery rate. In other words, large dues to farmers, or banks, is part of the sugar cycle; each time that politicians crack down on mills for not paying dues, even they know their action is unjustified since, there is no way mills can ever pay their dues fully to farmers. Ideally, the FRP should be abolished, and mills should not be forced to buy all the cane farmers produce, but no government is interested in sweeping market reforms.