The Hindu Business Line : How true is the sugar sector’s Catch-22 situation?

The proceeds of an efficiently managed sugar factory are large enough to meet even the comprehensive cost of production. There should be no difficulty for the factories in paying at least the statutory minimum price fixed by the Union Government, says SHARAD JOSHI

The sugar season has opened this year with an opening stock sufficient to meet a third of the year’s consumption demand. This year’s production will add another 300 lakh tonnes. The New Year will open with a carry-over stock of almost a full year’s consumption demand.

It is claimed that sugar prices had hit a low of Rs 1,220 per quintal in the domestic market. The prospects in the international export market are no better. Payment of remunerative/statutory minimum prices to sugarcane producers and reasonable wages to factory employees is a political necessity. Sugar factories are getting caught in a scissors’ hold between low prices and high costs of production.

How real is the Catch-22 situation in the sugar industry? The sector’s representatives claim that the accumulated arrears to cane-growers reflect their difficult situation.

Is the demand for remunerative prices of the farmers responsible for this state of affairs in the sector? Even the Minister for Agriculture, Mr Sharad Pawar, recently made a statement that even God himself would not be able to pay farmers the prices that they are demanding. The spokesmen of the sugar industry are openly saying that it would not be possible this year to pay even the statutory minimum price (SMP) ordained by the Union Government.

Viewing the situation

To grasp the truth of the situation, it is necessary to look at the position of the industry from three points of view:

First, what is the actual cost of cultivation of sugarcane per tonne?

Second, what is the legal obligation on the sugar factories as regards price of cane?

Third, what is the income earned by a sugar factory from one tonne of cane?

The Union Government has fixed the statutory minimum price (SMP) at Rs 811 per tonne for the sugar recovery of 9 per cent. For each and additional sugar content percentage there is an increase of Rs 93 per tonne.

In Maharashtra, the recovery varies from 10 per cent to 13 per cent. The average cost of harvesting and transport is around Rs 150-180. Simple arithmetical calculations show that the statutory minimum price payable in Maharashtra computing the upper limit of transport and harvesting costs, would be as seen in Table 1.

Crushing one tonne of sugarcane, the factories produce certain quantities of molasses, pressed mud, bagasse and sugar (Table 2).

At present, the prices of all these products are depressed. However, the factory’s earnings per tonne of sugar, molasses, pressed mud, and bagasse can be taken as Rs 12,000, Rs 1,500, Rs 100, and Rs 800 respectively. On that basis, the revenues earned by factories processing one tonne of sugarcane can be calculated (Table 3).

The typical cost of extraction is only around Rs 250 per tonne of sugarcane. With the recent increases in wages even if it is computed at Rs 300, the four categories of factories should be able to pay the farmers Rs 1,519, Rs 1,680, Rs 1,851 and Rs 2,032 per tonne of sugarcane, respectively.

Having established that the factories should have no difficulty in paying the farmers a price that is well above the statutory minimum price (SMP), it would be interesting to find out if the farmers’ demands are unreasonable.

According to the calculations (2006-07 season) of the Agricultural Produce Price Committee of the Agriculture Department of the Maharashtra Government, the per acre cost of cultivation of sugarcane (of 9 per cent recovery) is Rs 24,041 and the per acre yield 28.62 tonnes, which means that the cost of cultivation of sugarcane, according to the official figures, is Rs 840 per tonne.

For the season 2007-08, the per acre cost of cultivation of sugarcane (of 9 per cent recovery) is Rs 25,030.20 and the per acre yield 31 tonnes in the calculations of the Committee which indicates reduction of cost of cultivation of one tonne of sugarcane from Rs 840 to Rs 807.42.

Cultivation cost: Farmers’ take

According to the calculations (2006-07 season) made by the Farmers’ Organisations, on the basis of the synthetic modelling method rather than the averaging method used by the CACP or the State Government committee, the cost of cultivation per acre was Rs 62,042 and the yield was 35 tonnes, giving an average cost of cultivation per tonne of Rs 1,773.

There are major differences between the two computations of costs, for instance, the rental for owned land, and wages for the domestic labour as also for hired labour. There is reason to believe that the calculations of farmers’ organisations are more realistic.

Demand justified

In sum, the proceeds of an efficiently managed factory are large enough to meet even the comprehensive cost of production.

There should be no difficulty for the factories in paying at least the statutory minimum price (SMP) fixed by the Union Government. The protestations of the sugar industry, both in the private and the cooperative sector, seem to have a hollow ring, indeed.

(The author is Founder, Shetkari Sanghatana and Member of Parliament (Rajya Sabha). He can be reached at sharad.mah@nic.in)

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