On Monday (February 21), Maharashtra’s Maha Vikas Aghadi (MVA) government issued a government resolution which will allow sugar mills to pay the basic fair and remunerative price (FRP) in two tranches. While the sugar industry has welcomed the move, farmers have opposed it, and some leaders have spoken about going to court to challenge it.
What is the FRP, and how is it paid?
FRP is the price declared by the government, which mills are legally bound to pay to farmers for the cane procured from them.
The payment of FRP across the country is governed by The Sugarcane Control order, 1966 which mandates payment within 14 days of the date of delivery of the cane. Mills have the option of signing an agreement with farmers, which would allow them to pay the FRP in installments.
Delays in payment can attract an interest up to 15 per cent per annum, and the sugar commissioner can recover unpaid FRP as dues in revenue recovery by attaching properties of the mills. Assured payment is one of the major reasons why cane is a popular crop with farmers.
The FRP is based on the recovery of sugar from the cane. For the sugar season of 2021-22, FRP has been fixed at Rs 2,900/tonne at a base recovery of 10 per cent.
Sugar recovery is the ratio between sugar produced versus cane crushed, expressed as a percentage. The higher the recovery, the higher is the FRP, and higher is the sugar produced. Thus, mills in Sangli and Kolhapur, which have an average recovery of 13.18 per cent, have an average FRP (inclusive of harvesting and transport charges of Rs 600/tonne) of Rs 3,822.2.
Mills deduct the harvesting and transport charges from the final payment — and therefore, farmers in these two districts would be paid an average rate of Rs 3,222.20/tonne of cane.
On the other hand, in the Nagpur region, the average recovery is just 10 per cent, and farmers are paid a much lower rate of Rs 2,000/tonne, net of harvesting and transport charges.
Last season over Rs 25,000 crore was paid to farmers by way of FRP.
So what is the change that has been proposed?
Since the beginning, sugar mills have paid farmers on the basis of the sugar recovery of the previous season. Thus, mills in the present season (2021-22) would pay as per the recovery of the 2020-21 season.
Mills raise money by ‘pledging’ their sugar stock, and use the realisations from sales to clear their debts. Thus, in a difficult year when sales are lean, or in a year of bumper production, mills face severe liquidity crises, and fail to pay both their creditors as well as the farmers. This ultimately leads them to financial insolvency, which can end with the mill being sold off or rented out.
Payment of the basic FRP in installments has been one of the long-standing demands of the industry. It has been argued that it would ease the liquidity burden on them.
Of the 197 mills in operation in the state, around 100 already have agreements with farmers to make payments in parts. Around 75-80 per cent of the FRP would be paid within 15 days of the cane being delivered, and the rest would come in equal installments during the time from the end of the current season to the start of the next.
Monday’s government resolution makes the payment system more systematic. The mills will now have to pay the FRP in two installments — and instead of relying on the recovery of the last season, they would have to pay as per the recovery of the current season.
The state has been divided in two recovery zones of 10 per cent and 9.50 per cent. The districts of Pune, Satara, Sangli, Kolhapur, Solapur, Nashik, Ahmednagar, Dhule, Nandurbar, and Jalgaon have been put in the 10 per cent recovery bracket, while the rest of the state has been put under 9.50 per cent.
From the 2022-23 season, mills will pay the FRP in two installments. The first installment would have to be paid within 14 days of delivery of cane, and would be as per the average recovery of the district.
Farmers would get the second installment within 15 days of the closure of the mill after calculation of the final recovery, which would take into account the sugar produced, and the ethanol produced from ‘B heavy’ or ‘C’ molasses.
Thus, instead of relying on last season’s FRP, the government resolution says farmers would be paid as per the current season’s recovery. Mills would have to henceforth declare their FRP in two widely circulated newspapers.
And why are the farmers protesting?
Farmers have protested strongly, and former MP and founder of the Swabhimani Shetkari Sanghatna Raju Shetti has described the resolution as daylight robbery.
According to farmers, what this order essentially says is that they would be paid as per the average recovery band of their district within 14 days of cane delivery, and the final payment would happen after the final recovery is calculated after the season.
Therefore, farmers in Sangli and Kolhapur who were paid at the minimum rate of Rs 3,222.20/tonne, would now get the first instalment of Rs 2,900/tonne (provided FRP is not raised for the next season), and for farmers in Nanded and other parts of Marathwada, the first installment would be of around Rs 2,755/tonne, which is almost similar to the FRP they are being paid currently.
The final recovery, which would be calculated within 15 days of the season ending and would depend on the sugar and ethanol produced from B heavy or C molasses, can be both higher or lower than the previous season, industry insiders say.
Farmers from Sangli and Kolhapur argue that this method would impact their incomes. They point out that while FRP will be paid in installments, and will depend on an unknown variable, their bank loans and other expenses are expected to be paid for as usual. Shetti said that farmers most require a lumpsum at the beginning of the season (October-November), because their next crop cycle depends on it.
Shetti has also questioned the state government’s authority to tinker with the payment schedule of FRP, arguing that is the prerogative of the central government. “The state government has taken advantage of the 2016 circular of the central government which allows states to declare FRP. What they have conveniently overlooked is that the circular allows them to sign and declare mill-wise recovery, but does not allow them to come out with a notification to pay FRP in installments. “I have decided to challenge this in the High Court,” he said.
