Mill Owners Owe UP Farmers Over ₹2,500 Crore, And Here’s Why They Haven’t Paid Yet

Posted on December 1, 2015 in Business and Economy

By Abhishek Jha:

The NCRB data on farmer suicides was contested when it was released earlier this year. Yet NCRB arrived at the estimate of a significant 63 of such suicides in UP in 2014. Bankruptcy or indebtness accounts for 20.6% of those suicides, despite NCRB’s conservative estimates. Such insurmountable debts have been arising due to the non-payment of dues by sugar mill owners to the farmers. Despite three huge loans extended by the Cabinet Committee on Economic Affairs (CCEA) since December 2013, specifically for the payment of arrears, the corporate sugar mill owners in Uttar Pradesh still owe arrears amounting to Rs. 2,760 crore to the farmers of the state. A recent report published by the Hindu based on a document of the Uttar Pradesh Cane Development Department has sought to quantify that amount owned by the various corporate mill owners.

The Loans

Courts have unequivocally ordered the state as well as banks and mill owners to put the right to life of the farmer before the right to business of the mill owners because of regular suicides committed by farmers under debt arising from non-payment of their arrears by the sugar mills. The three loans by the Centre included interest-free loans of Rs. 6,600 crore in December 2013, of Rs. 4,400 crore in June 2014, and of Rs. 6000 crore in June 2015. Other measures, for instance, an increase in remunerative prices for ethanol supplied for blending as well as an increment in the percentage of ethanol blended with petrol, were also taken. Since ethanol is produced by the sugar mills, these measures were supposed to help sugar mills earn more, so that they could pay the farmers irrespective of the trend in sugar prices. All such measures seem to have fallen short of meeting the farmers’ basic requirements.

REUTERS/Anindito Mukherjee
REUTERS/Anindito Mukherjee

The Dispute

Pending arrears despite these measures might appear strange as the interest-free loan packages (1,200 crore of the 6000 crore announced went to UP) were disbursed through banks and meant to be transferred straight to the farmers. In response to court orders in favour of the farmers, the UP Sugar Mills Association (UPSMA) has previously alleged that the huge arrears accumulate due to the differences in the Fair and Remunerative Price (FRP) set by the centre and the State Advised Price (SAP) fixed by states that can differ from state to state and the downward trend in market rate of sugar. FRP for 2013-2014, for instance, was Rs. 210 per quintal, while the SAP for UP was Rs. 280 per quintal. However, state authorities claim that the SAP cannot be lowered as it is calculated on the basis of the expense incurred by the farmer in production of sugarcane, meaning that the farmers would suffer losses and ultimately go bankrupt if they sold sugarcane at prices lower than their input cost. Also, a Down to Earth report from a year ago quotes the Rashtriya Kisan Mazdoor Sangathan (RKMS) as saying that the mills “Despite their so-called losses”, “have multiplied their units from 34 to 100 in the past 10 years. How can they be loss-making? They take money from banks, siphon it out to various plants and don’t give anything to farmers.”

What Does The Future Hold For The Farmer

The allegations of RKMS, if true, are characteristic examples of corporate groups shifting the burden of their own bad decisions on to state policy. The allegations, moreover, are not totally unfounded, as the corporate houses owing money to the farmers are not small mill owners but have business spread across various industries. The Bajaj Group alone owes Rs. 515.52 crore to the farmers. The Birla Group, the Mawana Group, and the Simbholi Group are some other top defaulters. The “high-handedness” of the governments and the courts that these groups seem to resent seems more like a pat on the back, given that the centre put a one year moratorium on the repayment of the loan given to the banks and that the groups were incentivised by the government to pay the farmers instead of being reprimanded for rising arrears.

Sugar stocks have, however, seen strong upward trends this month due to international shortage arising from drought conditions as well as more increase ethanol usage, a Business Standard report says. This may be a positive sign for the farmers if the mill owners use this trend to pay them back. Whether that will happen in the days to come depends on how willing the mills and the governments are to do so.