Sugar mills’ Federation says it’s impossible to pay farmers unless prices go up

MUMBAI: FOR the first time in the five-decadeold co-operative movement history in Maharashtra, the sugar mills have failed to pay sugarcane growers their dues.

Co-operative mills in the state have not so far paid the second instalment of sugar cane dues to farmers, normally released by the mills around October-November . Worse, the Maharashtra Co-operative Sugar Mills’ Federation says it is near impossible to pay the second instalment unless the sugar prices goes up substantially.

“This is unprecedented. What the farmers have received so far for the 2009-10 season is the first instalment that has to be given within 14 days of cane being delivered to the mill,” said Prakash Naiknawre, managing director of the federation.

Maharashtra accounts for roughly one fourth of the total area under sugar cane cultivation in India or around 12 lakh hectares and has about 35% share in the national sugar yield. In 2009-10 season, 165 co-operative units in the state operated. Traditionally, the mills in Maharashtra have paid substantially more than the fair remunerative price (FRP) fixed by the Union agriculture ministry . In addition to the first instalment which must by law be at least equal to the FRP, there are usually three more instalments spread over 12 months.

Multiple factors are being blamed for this unprecedented scenario in Maharashtra where the sugar co-operatives have spawned several formidable political dynasties and controlled the state for much of its history. First and foremost, the initial estimate of a low output in 2009-10 went wrong by millions of tonne. All estimates pegged a cane production of 40.1 million tonne and sugar output at 4.8 million tonne. But the mills actually crushed more than 61 million tonne of cane and produced 7.1 million tonne of sugar.

Mr Naiknawre said three factors caused a quantum increase in productivity. “On the basis of the FRP, the farmers were given the first instalment within 14 days in 2009. This worked out to around Rs 2,500 per tonne which was much more than the FRP of Rs 1,575 per tonne. Farmers reinvested this amount in cane cultivation by way of adding productivity-enhancing inputs . Then, the unseasonal rains in October-November 2009 helped the crop and per hectare productivity went up from the normal 63-65 tonne to 78 tonne. Thirdly, the cane growers went in a big way for a 2007 variety called Phule 265 which further increased the output to 85 tonne per hectare,” Mr Naiknawre said.

Though the average cane price was Rs 2,400-2 ,500 per tonne, the production or conversion cost (converting cane to sugar) has been Rs 2,700 per quintal. Also, the average realisation of sugar has been Rs 2,300, resulting in a clear short margin of Rs 400 per quintal between production and realisation. “Therefore unless sugar prices rise from the current level, mills are unlikely to be able to pay the second instalment to the farmers,” adds Mr Naiknawre.

The short margin refers to the difference between the quarterly benchmark price fixed by the bank for a bag of sugar and the realisation by a mill. The mill meets its working capital requirement by borrowing from the bank against its sugar stocks. The bank releases 85% of the benchmark price to a mill to meet crushing and other allied expenses such as labour. In Maharashtra, the Maharashtra State Central Co-operative Bank sets the benchmark price.

In the quarter from May, the benchmark price was fixed at Rs 2,650 a quintal . However, with the current price of sugar quoting at Rs 2,300 (against an average of Rs 3750 in January when retail price hit a record high of Rs 41/kg), there has been a whopping Rs 350 a quintal short margin in the books of accounts of the mills with the bank, leading to fears of the accounts becoming irregular. According to an industry source, there is a possibility of the benchmark price being reworked under the circumstances.

“The mills genuinely hope that the farmers get at least one more instalment but their finances don’t permit,” Mr Naiknawre said.