JUDICIAL INTERVENTION CAN RESOLVE UTTAR PRADESH SUGARCANE PRICING ROW
RESOLVE SUGARCANE PRICING IN UTTAR PRADESH THRO’ JUDICIAL INTERVENTION.
Concept of even sugar “Made in India” should be supported by market dynamics.
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Uttar Pradesh (UP) farmers are exposed to Rs 5000 crores sugarcane arrears on account of dichotomous policy of State Government of overpricing the cane unrelated to market realization of sugar. Citing lack of profitability, millers have ignored dictates of UP government for short payments.
Allahabad High Court on 13th August 2014 directed that 15% of 3 million tons (mts) of sugar inventory of UP mills be sold within three weeks (@5% per week) for clearing farmers’ arrears. Any coercive action on UP’s sugar mills by the State Government is held in abeyance for time being. The matter being subjudice, it inter-alia isolates Union Food Ministry, at least for next three weeks, from considering industry’s other demands like raising import duty on sugar, raw sugar export subsidy and interest free loans from sugar development fund. Industry is lobbying Central assistance for injecting bullishness in prices for squaring up short payments. Food Ministry response to the industry is well articulated and well crafted—clearance of cane arrears is the condition precedent for any thing else.
The court has fixed minimum selling price of Rs 3100/qtl. Net realization will be about Rs 1395 crores or about Rs 465 crores per week by auctioning 150000 mt per week—a huge tonnage, 35% of weekly national consumption of 430000mt/week (annual consumption 22.5 mts). Amount realised, as directed by the court, will be deposited in separate bank accounts of District Magistrates, of which 30% (about 418 crores-- not even 10%-- of Rs 5000 crores outstanding) will go to farmers. The banks have argued that sugar stocks are hypothecated to them by millers against working capital loans. Thus they hold first charge from such accruals.
On 14th August, NCDEX “spot” price is Rs 3300/qtl at Delhi. The spread of Rs (3300-3100)= Rs 200/qtl or 6.5% is awfully insufficient for sustenance of wholesale chain for defraying cost of financing , labour, transportation, transit shortages, warehousing, carrying charges, incidentals expenses and profit. If by chance, first weekly disposal is a success, market price will drop further, thereby stalling next week sale. Possibility of sale to any MNC/industrial user like Coca-Cola, Pepsi, Cadbury, Britannia etc. appears bleak as they can avail credit facility from millers in Karnataka, Maharashtra or Tamilnadu.
Entire banking system is already under microscopic scanner due to NPAs/ debts and currently highly stressed and distressed by the recent case of Syndicate Bank. Banks may therefore assert their precedence and priority with full force in Supreme Court, if High Court fails to provide relief. Matter in courts will get extended or dragged; UP mill owners may get protracted reprieve, while sugar stocks stay where they are. Recovery of cane arrears appears to be a distant dream.
Sugar prices domestically and internationally are foreseen depressed for another year. Even at such a bearish scenario and factoring Monsoons too, Indian output in 2014-15 is forecast to remain unchanged at 24-25 mts with carry in of about 7.5 mts on 1st November 2014-- a surplus of around 10 mts (taking consumption 22.5 mts). Farmers are not downsizing sugarcane production and appear to be content with even partial payments availed by them. Industry is also on capacity expansion mode. Does it not lend credence to collective viability of the sugar industry when appraised with other by products? This may perhaps be debateable either way.
Due to prolonged controversy, UP government would have realized the mess they have created by pursuing theory of absurdity in fixation of irrational State Advisory Prices (SAP) of Rs 280/qtl in 2013-14, while in Maharashtra/Karnataka/
Tamilnadu it varies between Rs 220-240/qtl. To set matters right, UP government may announce reasonable SAP closer to Rs 220/ qtl for 2014-15 by appropriately calibrating it with rate of recovery and apply the condition that mills will settle old cane arrears too. This will average out two years cane value to about Rs 245/qtl.
If this is politically unpalatable or unworkable, then this is a golden opportunity for the industry to file an interlocutory application, if not done already, in Allahabad High Court with documentary evidence of input –output data correlated to market prices. The Centre and the banks can also be made party to this application and court may seek Central endorsement on the faux-pas committed by UP government. Rational policy for SAP can then be defined by the judiciary.
The concept of sugar “Made in India” has to be supported by dynamics of market rather than political or bureaucratic ideas. Why not revert to the old rationale of FRP (Fair Remunerative Price) decided by CACP than to have 10 SAPs? Policies of populism of poverty favour political parties rather than individuals. Framers—big or small- are also land owners-- an asset class. Their earnings are exempt from tax. Disparity in income with other sections of society cannot be construed poverty. Recent World Bank report suggests sharp decline in Indian poverty in 2011 to 100 million in poor based upon PPP of $1.25 per day. Also, sugarcane remains the most profitable crop as compared to other crops as per CACP analysis. This is the time to make the change in SAP’s policy profile.