Last week saw the sugar industry's every nightmare come true. Agitations, protest fasts and road blocks in Maharashtra. Disbelief and despair in Uttar Pradesh. And they all stemmed from the old game politicians have enjoyed for decades now - pit industry against farmers and watch the slugfest.

In Uttar Pradesh, sugar mills are entering cardiac arrest. With an eye on 4 million sugarcane farmer votes, CM Mayawati has asked industry to pay Rs 240 for a quintal of cane. Basically, it will now cost a UP mill between Rs 26 and Rs 28 to produce a kilo of sugar. As wholesale prices are also at Rs 28/kg and unlikely to rise due to ample supplies, you can understand why the state's 126 mills (and their bankers) are losing the will to live.

A loss of even Rs 2 per kilo on 6 million tonne sugar would be enough to wipe out UP sugar industry's net worth. No amount of ethanol, power or particle board can compensate for it. Desperate private mills have now decided to get a court order that would let them pay less than what Mayawati announced. But there is no guarantee it will go in their favour.

Why isn't Mayawati bothered by the loss of jobs and bankruptcy that would follow her announcement? Because she knows the chances are zero. At some point (this timing is the biggest risk), the Central government will play Santa Claus with a bail-out package paid for by you and me. It will be off her books; industry will survive and farmers will be delighted. Can there be a happier ending?

In Maharashtra, farmers are at the losing end. The state government initially asked mills to pay only Rs 144.50 for quintal of cane, almost equal to the fair and remunerative price fixed by the Centre. But farmers want Rs 235. Stung by this slap on face, farmers organizations such as Shetkari Sangathana led by Raghunathdada Patil and Sharad Joshi and the Swabhimani Shetkari Sangathana led by Member of Parliament Raju Shetti, took to the streets, helped by Shiv Sena and Maharashtra NavNirman Sena.

With elections approaching, this worsening law and order problem was the last thing Congress and Nationalist Congress Party needed. Last month, Sharad Pawar managed to cobble a deal on wages with BJP's Gopinath Munde, who represented the lobby of sugarcane harvesting labour.

But this time a satisfactory ending may be tough. Cooperative sector banks give 40% of the loans taken by sugar mills and they are virtually bankrupt. Other banks are willing to lend just enough for mills to pay farmers Rs 145. Saddled with unsold sugar and falling sale price, most factories have anyway exhausted their working capital lines.

Late on Friday night, Maharashtra announced a new price range of Rs 180-205. However, unless mills dramatically improve their cash flow (unlikely) or the state government re-capitalises cooperative banks (pure fantasy), there is no way farmers can receive the money they want.

The irony is that the crisis in UP and Maharashtra is totally unnecessary. If the state governments had not announced a cane price and let the market decide its value, there would have been no bad blood between mills and farmers. But good business is bad politics.

source: ET

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