Fixing UP's sugar problem PDF Print E-mail
Monday, 24 July 2017 04:22
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Centre does well to tell UP to implement Rangarajan

After fulminating against errant sugar mills for not paying farmers their dues, the UP government may finally address the real problem of forcing sugar mills to pay too much money to sugarcane farmers. Every year, the central government comes out with Fair and Remunerative Price (FRP) at which sugar mills have to buy cane from farmers. All states, and UP is the most guilty, fixed a State Administered Price (SAP) that was higher than the FRP, and that was the genesis of increasing farmer arrears. While the UPA had come out with the Rangarajan formula on revenue-sharing between the mills and farmers, states like Maharashtra and Karnataka accepted this, but UP did not. As FE pointed out, over the past five years, UP’s sugarmills paid around Rs 19,000 crore extra to the farmers as compared to a situation where the Rangarajan formula had been adopted.

According to a news story in FE last week, the central government has advised UP to implement the Rangarajan formula. Over a period of time, UP has improved the quality of cane being planted, as a result of which more sugar can be got from the same cane—till even two years ago, just around 9.54% of the cane could be converted to sugar while that is up to 10.61% on an average. As a result, the SAP that was very high a few years ago is less burdensome today. In 2014-15, while the FRP (at a 9.5% recovery level) was Rs 220, the SAP was Rs 280 (SAP is not based on any particular level of recovery)—once you factor in the recovery, the gap was Rs 50 per quintal. In the season beginning October 2017, the FRP is Rs 255 and the SAP Rs 305—given the current recovery levels of 10.61%, the gap is a much lower Rs 20 per quintal.

So, if Yogi Adityanath is able to make the transition quickly, farmers will adapt to the new model—if the sugar cycle changes, as it does from time to time, the sugar mills will not be forced to pay out extra and this will not, once again, lead to the old arrears-agitation-crackdown cycles. Keep in mind that, in 2016-17, when the FRP-SAP gap was Rs 48, UP’s sugar mills had to pay farmers nearly Rs 4,000 crore extra. Whether Yogi Adityanath will pay heed to the central government’s advice is not clear, but what should be clear to him is that there is no other way out. He cannot keep pampering the cane farmers at the mills’ expense. And taking over the mills, as was once threatened, is no solution since there will be no one left to buy the cane. Reform is not just the best politics, it is the only politics.



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