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It's probably the old trick in the book. Create a crisis and then provide a solution just before elections. That is how government across party lines have been milking the sugar belt and they continue to do so in the present case. Little wonder that sugar is one of the most controlled industries in the country.
Sugarcane prices paid to farmer are around Rs 280 per quintal in Uttar Pradesh, but their 'poorer' cousins in Maharashtra are paid Rs 210 per quintal for a yield of 9.5% (sugar content in sugar cane juice). While purchase price for sugar mills is substantially higher in Uttar Pradesh, they have to compete in the same market to sell sugar as their counterpart in Maharashtra.
Now every kilo of sugarcane (in Uttar Pradesh) contains around Rs 26.6 of sugar (280 X 9.5%), but to extract it and convert it to sugar in the form we use, it costs the mill around Rs 3.4 per kg. So for the mill in Uttar Pradesh, the cost of sugar at its factory gate itself works out to Rs 30 per kg, and this is just the production cost.
Sugar trades at around Rs 31 per kg on the commodity exchange. For mills in Maharashtra, the cost works out to Rs 23.35 per kg. As if this were not enough, the government wants mills to supply sugar to the government (levy sugar) through a tender basis at a price lower than market rate.
The difference between the sugar industry in Uttar Pradesh and Maharashtra is that production of sugar is controlled by private mills in Uttar Pradesh and largely controlled by co-operatives in Maharashtra. Most of the co-operatives in Maharashtra are operated by politicians while those in Uttar Pradesh are by large corporate.
The current crisis has been triggered by private millers in Uttar Pradesh. Since politicians are not involved in manufacturing sugar in Uttar Pradesh, they played in the hands of farmers and increased sugarcane prices. This time around too though the crisis has been triggered by the millers, it was pre-empted to put pressure on the government as farmers were now asking for sugarcane prices to be raised to around Rs 300-350 per quintal.
Reports say that government is now contemplating a package of Rs 50,000 crore which would create a buffer stock of 5 million tonnes of sugar, relaxation in tenure of loans, export incentives and raising import duty from existing 15% to 50%. In other words, ground is being prepared to raise sugarcane prices by giving the millers a sweetener in form of incentives.
Guess who will be fitting the bill? You and me, the eternal suckers.
Government had a chance to correct the woes of the sugar sector when Rangarajan Committee made its recommendation of totally decontrolling the sector and let market forces control all aspects of the trade. But government implemented only those recommendations which were favourable for the industry.
Millers have announced a suspension of operations just as farmers were ready with their harvest. They claim that they have incurred losses of Rs 3,000 crore in the previous year. With such high prices of sugarcane, their grouse is genuine.
Given how governments have been operating to pacify farmers and industry, the only solution will be to accommodate both the stakeholders. In doing so the only possible outcome will be higher sugar prices.
