When the sugarcane industry sowed the seeds of banking

On the face of it, the sugar industry seems to be better prepared than its peers to face the present cash crunch in the economy. The industry has been among the first to use the banking channel to pay its farmers and traders, even before the demonetisation shock.

“Cooperative banks, which gave concessional loans to sugarcane farmers, have played an important role in giving incentives to them to open bank accounts, explains N Ramanathan, Managing Director of the Chennai-based Ponni Sugars.

Sugar companies, too, realised that going cashless helps in improving fiscal discipline and governance. "But we couldn’t have done it overnight. So at every stage we brought down the eligibility for cash payment. Over the years we were able to drive entire cash payment out of our system. Now all payments go by cheque," said Ramanathan. “Banking has taken deep roots in the sugar sector in the last ten years. Today there is absolutely no cash payment being made by sugar companies in Tamil Nadu,” he added.

While this has insulated the sector from the present cash crisis, demonetisation has created its own set of problems. And that is because at the sub-traders level, cash transactions are still the norm, despite millers selling to traders on payments against cheques.

This meant that demand for sugar from these sub-traders has taken a hit. Some in the industry are also apprehensive of an impending payment crisis for casual farm labour hired for harvesting and loading, as the crushing season picks up all over the country in the coming weeks. While there may not be much of a problem paying cane growers and transport contractors, the actual trouble may begin when it its time to pay the labour involved in harvest.

With the crushing season beginning in Tamil Nadu in December, millers are “hoping against hope’’ that the cash supply in banks would improve. “Until there are notes of ₹100 and ₹500 denomination in circulation, it won’t help matters because harvest labourers get ₹500-600 in daily wages and have to be paid in small currency. For that there has to be adequate cash supply in the banking channel. Today it is not happening,” Ramanathan added.

For Balram Chini Mills in Uttar Pradesh where several mills have already started their crushing operations, cash payments to workers is not a major problem, pointed out Vivek Saraogi, Managing Director of the company.

What is problematic, though, is a decline in demand for sugar. “The major impact of demonetisation that we are witnessing is the fall in demand for sugar. While millers sell on payments against cheque and in our factories we don’t have any cash payments at all, I am told that down the line there are traders or sub-traders who buy from the main traders in cash. The chain gets broken somewhere, and that is why people are not able to fully trade in the current situation. As of now, our volumes seem to be a lot thinner,” Saraogi said without putting a number to it.

Reports say other large sugar companies such as Karnataka-based Shree Renuka Sugars have also reported lower purchase of sugar by wholesalers.

India is the world’s second largest sugar producer, after Brazil. The country had a carry over stock of 77 lakh tonne as on October 1, 2016 (from when the sugar season begins) and with an estimated production of 234 lakh tonne, total sugar available in the country during the 2016-17 season would be around 311 lakh tonnne, against the estimated consumption of 255 lakh tonne, according to industry body Indian Sugar Mills Association (ISMA).

Transporting such huge stocks of sugarcane will be a problem as the truck network needs cash to buy fuel.

“The small and marginal farmers who harvest cane with family labour will not be impacted. A few larger farmers who use contract labour will find it challenging. It will also be a little tough if they hire trucks to transport their product," said Abinash Verma, DG, ISMA.

Cane farmers, although assured of payments flowing into their bank accounts, have other worries. “The cane farmers who get payments from the millers in their accounts, need the cash to buy pesticides, fertilisers and other inputs. Half the farmers have their Kisan Credit Card accounts, but the other half can operate only through cash. If the cash situation is not eased out, there will be repercussions,” said Ramanathan.

Rakesh Tikait, a cane grower from UP and spokesperson for the Bhartiya Kisan Union, is hopeful of cane payments coming into bank accounts of farmers in the next few days, but has a simple plea. “The government should ensure that cane farmers don’t have problems withdrawing money from their accounts once payments are made. That is the only thing we want.

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