Non-Payment of dues to Sugarcane farmers, could become a political issue
The sugar mills owe INR 30,335 crore to cane farmers as in April 2019. Due to bumper harvests in cane and record production of sugar, the prices of sugar have reduced by 20% in the last year. Sugar mills claim that the prices of sugar have gone down below the cost of production, leading to high inventory and storage costs. The farmer’s leaders say that the government has not done enough to ease the farmers’ situation and it may hit the influential farmer vote bank. These farmers are key voters in 164 of 545 constituencies. The government extended soft loan to sugar mills to ease payment pressure on mills in February and March 2019. The higher production and sales of ethanol is also helping sugar mills to stay afloat.
There was bumper harvests of sugarcane and also record production of sugar. This has lead to reduction of sugar prices and also high inventory of sugar. There is hence, selling of sugar below cost of production and high storage costs. The sugar mills are hence unable to pay the dues to farmers, who are hence only able to scrape through. The Union government extended soft loans to sugar mills to ease this pressure of repayment. A soft loan is a loan structured to be very favorable to the borrower. The high demand and production of ethanol, also produced from sugarcane, is helping sugar mills stay afloat.
This is a perfect example of how economy, politics and banking can be interlinked. The Farmer’s leader is pressuring and threatening government to get the dues paid to them, in lieu of votes, farmer, an influential vote bank. There is an indirect pressure from sugar mills, for government to grant them soft loans. A soft loan is a loan which is structured highly in favour of the borrower. The government has already given 2 soft loans to sugar mills.
These are the disadvantages of a bumper harvest. It unsettles the economy. The government is hence encouraging export of sugar, to encash the large inventory of sugar. Various other measures are being taken like encouraging the sale of alternate products of sugarcane like ethanol, etc.