The Hindu Business Line : The bitter truths behind cane pricing

Recently, the Maharashtra Government announced that advance prices of sugarcane payable to cane-growers will be decided jointly by the sugar factory and the bank that finances the factory.

There is a long history that goes behind this decision. In 1920s, the few sugar factories that existed belonged mostly to private industrialists. There was little competition. It is difficult to say whether they paid a fair price or not, but the farme rs were assured of their cane being lifted and getting money for it.

A rising class

The cane-growers, amply satisfied, started considering themselves as a class apart from other farmers. Possibly, the rising class of opulent sugarcane-growers saw that the only ones that were better off than them were the factory owners. Caste considerations may have also prevailed. Padmashri Vitthalrao Vikhe Patil assisted by Dr. D. R. Gadgil pioneered the movement for cooperative sugar factories. The rest is history.

Sugar factories started springing up in areas that came under irrigation as a result of river projects executed by the British, ostensibly to make Maharashtra self-sufficient in foodgrains. The cane-growers sincerely believed that the days of exploitation by the bhatjis and sethjis had ended and they had now become the owners of the factories and that, therefore, it mattered little what price their own factory paid for their sugarcane.

The springing up of small sugar cities and the network of roads connecting them made the cane-growers complacent. And the fact that banks were willing to offer crop as well as long-term land-development loans created a euphoria that made the growers forget the economics of sugarcane production.

Banks gave loans to purchase seeds and fertilisers, labour came from nearby dry regions for harvesting and the sugar factories took care of harvesting and transport of the cane.

A later awakening

Sugarcane became the crop for the lazy farmer who had abundant time to indulge in land-grabbing and political activities. It was only in the 1980s that the cane-growers in Maharashtra were awakened to the fact that the price that they were getting did not cover even half the production cost. The cane-growers then started demanding remunerative prices as well as advance to be paid at the time of the delivery of cane at the factory.

Government intervention

Reality had also dawned on the cooperative barons. They were keen on increasing the productivity as also the sugar recovery of the cane, but averse to conceding a fair price to their member-producers. Consequently, the Government gradually began to take control. It decided on issues such as: What proportion of the sugar produced to be given to the levy for the public distribution system, and how much could be sold in the free market; the monthly quota for free-market releases; the price for the levy sugar; the material to be used for bagging; the price of the jute bags; the wages to be paid to factory workers and the harvesting labour; the deductions that could be made from the sugarcane bill towards political funding; whether sugar can be exported or not; and the Statutory Minimum Prices (SMPs) payable for the sugarcane as well as the first instalment that the factory can pay its own members. The northern States, where the co-operation had generally failed and where co-operative factories were largely run by government-appointed administrators, evolved a system of State Administered Prices (SAPs) which were, by and large, higher than the SMPs declared by the CentralGovernment.

The Maharashtra story

In Maharashtra, on the other hand, , where the sugar co-operatives were pretty successful, the story was quite different. The sugar barons were unhappy that the proportion of their production that went into Levy was being successively brought down. They had got used to having a command market. Apart from sugar, the factories produced alcohol and a large number of chemicals. Surprisingly, the price paid for the sugarcane by factories that produced these additional items were lower than those paid by other factories. Corruption and wastage had become rampant and the political power had practically passed into the hands of the sugar barons. They brought in the infamous Zone-Bandi — that is, banning cane-growers from giv ing their produce for crushing to any factory other than that assigned to them by the State.

The Maharashtra Government arrogated to itself the power to decide the advance as also the final prices to be paid for sugarcane by a factory. As per the Sugar Order 1960, the advance price payable at the time of delivery of the sugarcane should not be less than the SMP fixed by the Central Government. The calculation of SMP applicable for each cooperative factory depends on the respective harvesting and transportation costs as also the percentage of sugar recovery in the previous season.

Price fixing

It is quite clear that in a State where most sugar factories are in the co-operative sector, the prices payable have to be calculated separately for each factory depending on its recovery percentage and harvesting and transport costs.

However, the Maharashtra Government, under the pretext of protecting the interests of the regions of low productivity, started fixing prices that were lower than not only the State Administered Prices in the North but also the SMP fixed by the Central Government. Since 2004, both the Maharashtra Government and the Agriculture Ministry have been professing economic stringency and inability of the sugar factories to pay even the SMP.

For four years running, the farmers have been agitating for factory-specific SMPs and final prices based on the respective situations, but the State Government has been insisting on keeping the right to decide the prices.

Last year, the cane-growers in Maharashtra got an advance price of Rs 850-900 while most States in the North, where the cane is much more inferior in terms of sugar recovery, the farmers got over Rs 1,100 per tonne.

Victory for cane growers

It is in this context that the Maharashtra Government has now abjured its claim to fix the advance prices.

That is a major victory for the cane-growers’ organisations. The State has decided that henceforth the sugar factory should fix the price jointly with the bank financing the factory. As regards co-operative set-ups, the General Body should be the paramount authority for determining important matters such as the price payable to the members. The creditor bank can make some recommendations as to the prices that can advisably be paid. The final decision belongs, clearly, to the General Body.

In empowering the financing bank to have a hand in the price decision, the State government is playing clever . Most of the banks, particularly the co-operatives, are controlled by politicians.

The Maharashtra Government had agreed to form an expert committee for deciding on a system of price fixing based on percentage recovery. That committee, which was supposed to have submitted its report over six months ago, has still not been formed.

From its latest announcement, it is clear that the Maharashtra Governmenthad not seen the writing on the wall that sooner or later it would have to concede the power to fix prices to where it belongs — the member producers of the cooperative sugar factory.

(The author, a member of the Rajya Sabha, is Founder of the Shetkari Sanghatana. He can be contacted at sharad.mah@nic.in)