States refuse to roll back sugarcane price

Most of the sugarcane growing states have expressed inability to roll back state advised price (SAP) of sugarcane, citing political compulsion as reason.

The Union minister for food and agriculture Sharad Pawar today called a meeting of sugarcane ministers as well as finance ministers of the ten leading sugar producing states, including Uttar Pradesh, Maharashtra, Bihar, Karnataka, Andhra Pradesh and Tamil Nadu to discuss the need for rationalisation of sugarcane price based on sugar prices.

In the meeting, Pawar argued that fixing SAP of sugarcane over and above the statutory minimum price (SMP) was leading to huge cane price arrears. The gap between the SAP and SMP had been widening drastically.

This resulted in huge sugarcane production and low sugar prices resulting in the sugar mills not being able to meet the cost of sugarcane and building up of cane price arrears.

As compared to last year, when there were negligible cane arrears, the arrears this year have risen to Rs 3,800 crore, affecting the entire sugar industry, including the farmers. The minister also asked the states to remove all impediments to ethanol blending.

"However, states expressed their inability to do away with SAP", said a source.

Cane growers constitute a sizeable population in states like Uttar Pradesh and reducing cane price could affect the government's vote bank. States like Tamil Nadu expressed reservations against giving up their power to tax ethanol.

While the centre fixes the SMP for sugarcane at the beginning of every season, states add to this, allegedly keeping electoral exigencies in mind.

In 2004, both the Supreme Court and the Allahabad High Court upheld the right of state governments to fix sugarcane price over and above the SMP announced by the centre. Consequently, states like UP and Haryana have been steadily revising the SAP every year to please the sugarcane farmers.

The SAP is usually much higher than the SMP. In UP, for instance, the difference between SMP and SAP was as high as Rs 40 per quintal this year.

When sugar prices were high, mills had no problem with the formula. However, with sugar prices crashing, the sugar mills have been incurring huge losses.

The sugar industry is facing its worst crisis with the mills unable to recover the cost of sugarcane. Last year's production, at 28 million tonnes, is 45 per cent higher than the previous year's 19.2 million tonnes. Consequently, sugar prices have crashed and most companies have reported a loss in the preceding two quarters.

The worst is yet to come. Prices are expected to fall further with yet another record production, over 30 million tonnes, projected for 2007-08. Annual domestic demand is around 20 million tonnes.