The story of Raj Kumar & why your sugar is sour

Policy failures behind the travails of sugarcane farmers, consumers

ajay

Ajay Singh | March 17, 2010



Raj Kumar, 50, from Nagla Mubarik village of Muzaffar Nagar in western Uttar Pradesh, is a much relieved man these days. In his four-decade life as a farmer, he had encountered many financial ups and downs. But now he thinks he has insured himself against the uncertainties of life and farming. That is because, three years ago, he changed his crop pattern and instead of growing sugarcane on a substantial portion of his land, he started growing mostly poplar trees with a smaller area for sugarcane and turmeric.

Poplar is a new variety of fruitless tree that provides the raw material for furniture. It sucks the soil nutrients, guzzles ground water and debilitates other crops in adjacent fields in the long run. “But it pays!” says Kumar. His reasoning is simple: “You need hard cash to run a house.” Poplar and turmeric would fetch him instant cash whereas traditional crops like sugarcane, paddy and wheat are neither reliable nor profitable. As for the damage in the long run, he seems to have internalised the famous Keynesian maxim, “In the long run we all are dead.”

There’s a simple link between Kumar’s story and our lives: the skyrocketing price of sugar. The relief Kumar is experiencing because of the hard cash he gets from poplar is what is burning your purse. Yes, complex and complicated as the issue of sugar pricing is, this is the easiest way to understand why that sweet cube has seen price highs that it has not seen ever before: close to Rs 50 per kg in cities such as Delhi.

Because, Kumar is not alone in abandoning sugarcane farming. In 2009 alone five million sugarcane farmers in Uttar Pradesh have similarly dumped sugarcane farming. So, in trying to understand the mess that is the sugar industry, this is the first simple equation: Nearly 30 percent drop in the acreage of sugarcane (because millions of Kumars have found poplar better than sugarcane), a correspondingly big drop in sugarcane production and the consequent runaway prices of sugar.

But what is making the millions of Kumars of western Uttar Pradesh, the sugar bowl of the country, abandon sugarcane farming? Sugarcane farmers sell their produce to the millowners (this is quite unlike rice, wheat, pulses etc which the government buys from the farmers). But the price at which they buy is regulated at two levels. First, the centre announces what is called the minimum support price (MSP) which means the millowners cannot buy sugarcane below that price. Second, after the MSP is set, the state governments fix what is called the State Advised Price (SAP). SAP is always set higher than MSP and is binding on the millowners. On paper, thus, the farmer is well protected from the vagaries of the market forces. But things don’t work to a plan always. Especially not in the volatile business of sugarcane production which swings from glut to shortage in the space of a few production years.

The genesis of the current sugar crisis can be traced to the year 2006. To put a lid on rising prices, the government banned export of sugar. As the prices started stabilising and then tumbling, came the 2006-07 and 2007-08 seasons both of which saw sugarcane production far in excess of demand. Prices in India dropped but prices in the world market too crashed making even exports unviable. This situation recoiled on farmers such as Kumar. Faced with a glut in cane production and rising stocks of sugar, the mills found it unviable to lift sugarcane at the SAP. For two successive years, 2007 and 2008, farmers were stuck with their produce with no buyers. Even if they found buyers, they were not willing to buy at SAP and the mills were not paying on time. “We have not been paid our dues for the past two years,” says Kumar as other villagers nod in agreement. While arrears were mounting, the MSP for cane stagnated whereas that of rice and wheat saw an exponential growth of 30 to 40 percent in the same time. No wonder Kumar and millions of others like him started abandoning sugarcane from 2007-08 in search of greener pastures, so to say. 

But then came the cane-crushing season of September-October 2009. Sugarcane was much in demand. The 120-odd sugar mills of UP were willing to pay Rs 250 per quintal, Rs 90 in excess of the SAP, but there was just not enough cane on offer because Kumar’s relationship with sugarcane had soured. “This year we are getting the right price for our produce,” says Kumar but he is unable to grab this manna from the heaven because he just did not grow enough of it.

That’s the second simple equation in the ensuing sugar crisis. Kumar is denied SAP in 2007 and 2008, he is not paid on time by the mills, tonnes of sugarcane is lying on his fields because the mills just do not lift enough -- and he has to literally burn the cane to get his land vacated for the next alternative cash crop. So in 2009 he just does not have enough sugarcane to feed the mills.

But the mills have to roll and that can be done only by importing raw sugar from countries like Brazil and Indonesia. And here is where short-sighted policy and deep-rooted politics enter the equation. Union agriculture minister Sharad Pawar is himself an industry insider from the other big sugar producing region of the country, Maharashtra but failed to anticipate trouble or refused to. As former agriculture minister and another sugar belt politician Ajit Singh says (interview along side), there was no way Pawar could not have known that the acreage under cane production had shrunk and that the 2009-10 season would see huge shortfall in cane production. He could have forseen the problem and initiated imports in the first half of 2009. He not only did not do that, he also chose to release all buffer stocks of sugar to hold down prices till after the elections. Elections over, buffer stocks exhausted, and production down by nearly 40 percent, it was an invitation to disaster. Equation three.

Pawar responded by opening the floodgates to import raw sugar. Mills from Maharashtra, UP, Karnataka and Gujarat rushed to the international market and ordered raw sugar to meet the shortfall of 70 lakh tonnes of sugar in the domestic market. Things would have perhaps smoothened out but there was one more actor waiting to enter the equation. Uttar Pradesh chief minister Mayawati. In this unfolding crisis, Mayawati found an opportunity to fish in troubled waters. About 90 private mills of UP had ordered import of 8 lakh tonnes of raw sugar.  If the mills had started processing the raw sugar immediately, it could perhaps have eased the crisis and, of course, the mill owners would have made a killing. Somebody in the government apparently wanted a share of the pie. Industry insiders say that in a series of meetings a minister dropped enough hints to the mill owners to fatten the BSP’s party fund.        

“We were asked to levy Rs 10 per quintal on sugarcane to contribute to the party fund,” said a top industry source. “The amount so collected would be around Rs 400 crore which the sugar industry in UP was unable to pay.” The industry as a whole decided not to succumb to the pressure tactics.  The first retaliatory measure that came from the UP government was to ban the import of raw sugar on the pretext of law and order (for fear that the farmers might turn violent). About 8 lakh tonnes of raw sugar procured by UP sugar mills was thus lying in Kandla port for months. This was followed by the  seizure of raw sugar from Simbhawali sugar mill, one of oldest factories in West UP. So much terror was brought upon the mills that a senior executive quietly slipped out of the country waiting for the issue to subside. But this is not the story of Simbhawali mill alone. There are at least 100-odd cases slapped against the managements of about 40 mills under section 3 of the Essential Commodities Maintenance Act and various other offences. “It is law of jungle out there,” said the president of a powerful sugar group while drawing a parallel with Darwin’s theory of “survival for the fittest” in the country’s most populous state. The obvious implication is that those owners without deep pockets would leave the state while others might wait a bit longer. Many UP mills actually had to sell their raw sugar stocks to mills in other states. (The ban was lifted on February 22 when UP was about to hit the dry season.) A greedy UP government, idle UP mills, wasting raw sugar stocks: that makes up equation four of the sugar crisis.

Quite clearly, the vicious cycle of glut and shortage in the sugar industry spins out of selfish and short-sighted motives of policy planners at the centre and in the states.

As the sugarcane shortage is taking its toll on UP sugar mills which were the largest source of sugar supply, the crisis appears to be rather grim. That means there’s hardly any chance of Raj Kumar returning to sugarcane farming in a big way any time soon and you and me buying sugar at reasonable price. And that’s the final equation of the sugar crisis: that it is not about to disappear in a hurry. n
 

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