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Thursday, 21 November 2013 00:00
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The creation and handling of UP's cane crisis shows how bad economics makes for bad politics


With over four million cane farmers, it is not surprising that successive governments in Uttar Pradesh have chosen to fix the price at which sugar mills buy cane (state advised price, SAP) at well above what the Central government's Commission for Agricultural Costs and Prices (CACP) thinks is a fair and remunerative price (FRP), based on the value of what the cane fetches after processing and the costs involved in this. Last year, as against the FRP of Rs 170 per -quintal, UP's SAP was Rs 280. As a result, with most sugar mills in the state declaring huge losses — Rs 509 crore for Bajaj Hindusthan in the September quarter and Rs 122 crore for Balrampur Chini — the mills have been up in arms and, on Wednesday, decided to down shutters. For what it's worth, while this year's FRP has been raised to Rs 210, UP has stuck to last year's Rs 280, despite neighbouring Haryana fixing its SAP at Rs 300 — while that is a relief, since farmers wanted Rs 320, it is of little help to a bleeding sugar industry in the state that says, with sugar prices falling, all they can afford is a much lower Rs 220 or so.

Given that it's pretty much no-go as far as the mills are concerned and that the value of cane deteriorates each day it is stored, this is the recipe for a law-and-order problem, apart from the political implications. There are some palliatives in the sense that, were UP to allow sugar mills to sell molasses to country liquor firms at non-subsidised rates, this would help the bottomline. But even so, there is a gap of around Rs 40-50 per quintal that the industry refuses to bear. Perhaps a solution lies in the government making good this difference, or a large part of it, directly to farmers — the Rs 4,000 crore it will spend on the 80 million tonnes of cane produced in the state will still be a fraction of the revenues it collects by way of taxes on the industry. In the long run, however, UP will have to move to a formula suggested by PMEAC chairman C. Rangarajan, under which farmers get 75 per cent of whatever is realised by the mills from selling sugar and various by-products. Bad economics makes for poor politics.


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