Bitter Aftertaste

The 51-acre carcass that was once the thriving Jaswant Sugar Mill in Malayana exemplifies the results of myopic peasant populism. Today, post a VRS and a failed sell-off effort, it waits for oblivion or, worse still, to fall prey to UP's notorious realty mafia.

The buy-votes-at-any-cost strategy of the ruling BJP has spread a pall of gloom over the hitherto-prosperous 100-odd sugar mills in the state with a total installed capacity to crush 3,74,619 tonnes of cane per day. All sound economic judgment had been jettisoned even after the 2000-01 CAG report accused the state of incurring a Rs 2,500 crore loss due to a suicidal sugar policy.

Farm politics has historically been a successful tool for mass mobilisation in the state. The BJP's been doling out sops, in the process decimating the state's sugar industry. If the Samajwadi Party wins the UP elections, it will continue the good work.

In the last three years, 19 factories have closed down. This means that, in the long term, the farmers at whom the sops are supposedly directed will bear the brunt.

The seeds of the crisis lie in the dual pricing mechanism. What compounds the issue is that sugarcane prices—close to 70 per cent of the total cost of sugar production—are not linked to the end product. The Centre annually announces the Statutory Minimum Price (SMP) that the mills are bound to pay cane farmers. The states then add a political premium—the state advised prices (SAP). Purely with an eye on the polls, the Rajnath Singh cabinet has recently hiked cane SAPs, the only state to do so this year. In fact, for the last five years, UP has been consistently raising cane prices by Rs 5 per quintal every year, much higher than the Centre-recommended prices. The effective SMP in UP for 2001-02 stands at Rs 71.50 while the SAP for normal variety sugar is Rs 95. Even the rejected variety is Rs 92.50/quintal.

"In 1996, we moved the court challenging the state's arbitrary pricing and we won the case," says Shyamlal Gupta, secretary, UP Sugar Association. Thus, for that season, two prices co-existed in UP: Rs 70/q for the private sector and Rs 72/q for the government mills. Naturally, it was difficult for private players to sustain the price disparity. "UP is a militant state, where it's impossible to maintain a lower price once the government opens the floodgates of largesse. All of us are dealing with the same set of farmers," says Vivek Saraogi, MD, Balrampur Chini.

In a letter to Rajnath Singh dated August 28, 2001, the industry pointed out that while the average cost of production of sugar during 2000-01 in UP has been estimated at Rs 1,400/q, average realisation of levy and free sugar is Rs 1,345/q, a shortfall of Rs 55/q on the entire production. Also, factories could liquidate 97 per cent of the total cane price only by exporting about 3 lakh tones of sugar to Pakistan, besides additional sales of free sale sugar. The export option has vanished now following a ban by Islamabad. And additional sale of free sugar will only bring the price further down.

From 1993-94 till 2000-01, while cane prices in UP jumped 55 per cent, that of free sale sugar has increased only 15 per cent, a ruinous mismatch. Also, due to a sugar glut, factories are forced to carry huge stocks for a much longer period—the incidence of interest charges for longer carryover is estimated at Rs 60/q. The vicious cycle is completed by the banks, which are unwilling to lend to the industry.

So, the end result—farmers' dues are rising. But, of course, sugar minister Dr Narendra Gaur denies the state of affairs: "The dues are all being cleared and only the old mills are closing." But what the minister overlooks is when the dues are actually being cleared. Although farmers are supposed to be paid within 15 days of the close of season, struggling mills—both government and private—delay payments by almost six months.As on January 4, 2002, the UP Sugar Corporation had not paid 83 per cent of its cane bills; the figure for private mills is a bit less, but still high at 47 per cent. "Mills are being forced to step into a debt trap," says Ashok Kumar Goel, vice-chairman, Dhampur Sugar Mills.

This dirigismic set-up has made the sugar industry completely uncompetitive globally and in UP, the problem of surplus couldn't have made matters worse. The target of cane area fixed by the Planning Commission has been exceeded by 12 per cent so far. More and more area is being diverted to sugarcane production since farmers want to cash in. Do we need to spell out the impending doom?