Maharashtra Sugar Mills’ Agreement with Farmers

What is the issue?

Maharashtra sugar mills have an unusual agreement with farmers for this sugarcane crushing season.
It enables the former to pay the government-declared Fair and Remunerative Price (FRP) for cane purchased in three instalments.

What is FRP?

Definition - FRP is the minimum price at which sugarcane is to be purchased by sugar mills from farmers.
On basis of recommendations of Commission for Agricultural Costs and Prices (CACP), the FRP is fixed by Union government.
The season’s FRP is declared before the start of the crushing season.
Factors - The cost of production, demand-supply situation, domestic & international prices etc are the factors that are taken into account while recommending FRP.
Sugarcane’s FRP is determined under Sugarcane (Control) Order, 1966 which will be uniformly applicable all over country.
FRP is linked to recovery - the amount of sugar produced by crushing 1 tonne cane, expressed as a percentage.
The higher the recovery, the higher be the sugar produced, and thus the higher the FRP too.

What does the 1966 Order mandate?

It mandates that mills pay the basic FRP within 14 days of purchase.
If the mill fails to do so, they are to pay 15% per year interest.
Sugar commissioners are empowered to recover pending dues by attaching properties of errant mills.
The assured scheme of payment had over the years made cane a preferred crop among growers across the country.
While the law mandates payment within 14 days, the payment schedule has not been rigorously followed generally.

What happens generally?

At the start of crushing season, the farmers’ union in its Cane Conclave used to make demands for payment, which was above FRP.
Mills had to accede to the demand to prevent disruption in transportation of cane.
The first instalment was always the full FRP, while later instalments covered demands made by the farmers.

How do mills generate capital to pay their growers?

Sugar mills pledge their stock of sugar and avail of working capital from banks to pay their growers as well as to fund their operations.
Based on the valuation of sugar, banks issue loans to the tune of 75% of the current valuation.

Why did mills feel the need to get into agreements?

Case - During the 2014-15’s season, some mills in Maharashtra had defaulted on payment of basic FRP.
A farmer leader approached the Bombay High Court with demands including payment of 15% interest on late payment of FRP.
The court eventually asked the sugar commissioner to start the process of calculation of interest.
The then sugar commissioner started the process in 2019 and appointed government auditors to calculate the interest.
Given the financial implications, mills took the cue from the 1966 order and started making formal agreements with farmers for part-payment.
The cue - The order mandates payment of FRP within 14 days of cane delivery if there is no agreement otherwise.
This cue is being used by mills to get their farmers to sign agreements that would allow mills to pay 75% of the FRP as the first instalment and the rest in subsequent instalments.
Of the 136 mills that have entered the crushing season in Maharashtra, 76 have got into such agreements.
The payment clause was put in the cane registration forms that farmers sign and submit to the mills.

What are the ramifications of such an agreement?

Many farmers’ leaders claim the agreement would not stand the test of law as it leaves a farmer without the necessary standing to argue for a fair agreement.
In this case, many have said the agreement clause was put in the forms farmers have not read properly.
But mills have denied this and said it was only a small section of farmers who were insisting on full payment of FRP.
Mills claim that the financial constrains make it is impossible for them to pay the full FRP at one go.
Until these agreements are challenged in any court of law, mills in Maharashtra will continue to pay their growers as per these agreements.

Source: The Indian Express