Caned By Their Own Policies

This post focuses on the Miller-Farmer tussle in UP India, an example of how vote-bank politics alter and cause economy to falter. As the tension continues many will loose a lot. If you are from UP you might see a violent turn to this stalemate situation created. Millions of farmers are selling their produce at loss.Maybe another Vidarbh in making.

If you paid attention during school you will remember sugarcane for

  • being a cash crop and/or
  • miraculous nitrogen fixation (yes it is not a legume but..)

However, today i will discuss about sugarcane in altogether new setup:  UttarPradesh, Cane crushing mills, farmers and blind vote-bank policy decisions of the state.

Sugarcane is largest grown cash crop worldwide and India is the second largest producer after Brazil.
Growing sugarcane is water intensive.Interestingly fields are set on fire after they mature. The standing reeds are cut and the leftover ash acts as fertilizer. The canes are taken to crushing mills where their juice is squeezed out and repeatedly heated to obtain a syrup. From that syrup molasses,sugar,jaggery and many other products are obtained. The residual dehydrated cane acts as animal fodder.
UttarPradesh (UP) and Maharashtra  (Maha) are two largest sugarcane producing states of India. Adequate rainfall this year cheered UP and Maha farmers as they hoped to make for the loss of the year before. But a bumper produce is turning out to be a sore thumb as the mills decline to buy canes at the SAP.
Before you wonder what is SAP, let me introduce you to a cryptic looking acronyms couple related to sugarcane pricing:

  1.  FRP: Fair and Remunerative Price and
  2.  SAP: State Advised Price (Oh! what you thought it was SAmajwadiParty)

FRP is the price of agriculture produce recommended by the Central Government’s Commission for Agricultural Cost and Planning [ assumably a board of grey haired economist and policy makers] based upon many years of investment-return data. For sugarcane it is Rs.210 per 100 kg this year.
SAP is the price of sugarcane decided upon by the state government [assumably a sap father/son duo] disregarding the economics (cost of the output or global produce). It is mainly based on nearness of elections and to keep vote-banks secure. It is Rs.280 per 100 kg for sugarcane.

Returning to logjam between mills and farmers, mill owners are demanding lowering of sappy SAP as they have been operating under loss since last year.
How this affects the farmer?
Early November is the peak time to start crushing the canes, as the matter is dragged and time lost, produce will start to rot. This is forcing them to sell sugarcane at half of SAP around Rs 150-Rs 200. Time is of utter importance to them as, if they will not sow wheat on time, they will have to incur more losses.

How this affects millers?
Well, they are not operating so they will not be earning anything.It is pretty much obvious.

So the culprit seems to be SAP @ 280.

Why SAP for sugarcane is higher than FRP?
There are 4 million farmers involved in sugarcane farming.
2014 is election year.
Making them happy at expense of 200 private mills is a good decision from Yadavas vantage as sugarcane is the second largest “political capital” after caste that controls the polls in UP.
Moreover there is a tradition of increasing sugarcane SAP each year. During SP’s previous tenure SAP for sugarcane underwent 32% increase. Following under Mayawti’s rule a whooping  90% increase, nearly doubling income of farmers for the same amount of produce. @Rs280 Akhilesh is doing what he had claimed in his manifesto, increase sugarcane SAP to Rs 300. This is plain politics at play.

What about economics?
It is bad economics. Artificially stimulating a dead market might be ok but manipulating a balanced market is very unhealthy and it is being reflected in the losses of balance sheets of the sugar mills.
Normally populist decision lead to bad economics but really good politics.But for Akhilesh Yadav this is turning out to be double whammy with bad economics as well as bad politics. He seems at his wits end when he blames center for wrong sugarcane pricing policy to console the agitated farmers and sulking millers.

Why increase only sugarcane SAP, why not wheat, paddy?
I am glad you asked it.
Because sugarcane SAP is paid by the private mill owners not government.
Because wheat and paddy SAP will have to be paid by the state exchequer not some private firm.As government is the major buyer of the wheat/paddy produce it has to pay for it whereas sugarcane state advised price offers the ruling party to earn large vote bank without burning a hole in pocket or doing any real development work.

What about the millers?
They have been complaining ever since this trend of artificial price fixing, primarily aimed at removing their exploitative  pricing, started. Today the government is exploiting them. All of them are operating under heavy losses.

Shouldn’t the farmers get more for what they do in farms?
Certainly, there is a recommended revenue sharing model in which mills share upto 70% of the income with the farmers.Partial payment model is used and farmers get major payment once the mills have sold all their produce.But implementing it requires actual policy reforms for the sugarcane sector not some phony-vote-bank-scheme.And that requires some actual work which Akhilesh’s government has not shown much  interest in.

What can be done to save the farmers produce and remove the logjam?
Reduce the SAP, farmers will not like it but..

That would not turn good for SP {this is Samajwadi Party not SAP} electorally.Can’t we have something else?
Let me show you a master move: Centre gives Bailout Package from the under utilised agriculture fund.

Why would centre care to give a bailout package??
Oh! you are naive like me. 2014 is election year. Mulayam Yadav is a potential UPA ally and UPA is at center.

 

A bailout package is speculated to be on its way and seems the only way out but center should ensure that UP follows the recommended revenue sharing model for future. Otherwise this might set precedence for others to sell saccharine laced disasters, while expecting center to play guardian each time.

 

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