With news of alleged sexual assaults – from Tarun Tejpal to Asaram to Narayan Sai and Justice AK Ganguly – dominating the front pages, a crisis which has been taking place in Uttar Pradesh has found less importance than it should. Relegated as it is mainly to inside pages, it hasn’t made it to the top stories on news channels either. After all, this is not about a scandal involving a high profile guru or editor or judge. This is slightly infra dig – it is about a scam which is affecting farmers and sugar mill owners in Uttar Pradesh.

UP’s sugar millers, faced with what they viewed as an unreasonably high state advisory price (SAP) of ₹ 280 per quintal of sugar, had threatened to boycott the crushing season if the government did not lower prices. Sugarcane began to pile up in fields across the state as farmers found no buyers for their crop. Farmers staged protests and demonstrations demanding that mills be re-opened. The government reacted by issuing deadlines– which the millers had no intention of honouring – and when the deadlines whooshed by amidst a flurry of inactivity, FIRs were registered against striking mill-owners and a PIL was filed requesting that the mills be nationalised if they did not start production.

The impasse lasted less than a month though, with Akhilesh Yadav’s administration managing to convince the millers to resume production with an alluring cocktail of sops. These included a staggered payment system requiring mills to pay ₹ 260 a quintal to farmers initially and the remaining ₹ 20 at the end of  the crushing season and a range of tax exemptions amounting to savings of ₹ 880 crore for the millers.

While this deal does accomplish the pressing task of getting the mills to begin crushing, it largely ignores the underlying issues that led to this crisis in the first place.

UP’s sugar mills are collectively faced with debts amounting to almost ₹ 8000 crore. “This may cross Rs 10,000 crore if UP government does not reduce the SAP”, said Abhinash Verma, director general of the Indian Sugar Millers Association (ISMA) in an interview with The Times of India. “Public sector banks like State Bank of India, Punjab National Bank, Allahabad Bank, etc. have given in writing that if the cane price is not rationalised as per Rangarajan Committee formula, they will not give working capital loans to UP mills in 2013-14. This has made the situation grave and mills cannot start crushing without a solution.”

The high SAP has a detrimental effect on sugarcane farmers as well. The mills’ mounting debts translate into an inability to pay for the produce they acquire, leaving pending payments of up to ₹ 2400 crore for farmers.

However, in the light of the approaching general elections, the government paying heed to these warnings and lowering the SAP would have amounted to political suicide. Instead, the state government passed the buck to the Centre, which constituted a high-level committee to look into the issue, headed by Union Agriculture Minister, Sharad Pawar. (Incidentally, Pawar has been accused on multiple occasions of scams relating to the sugar industry.) The committee is widely expected to come up with a bailout along the lines of the relief packages handed out in 2007 and 2003, almost like clockwork.  This will presumably enable the industry to survive until the next election cycle when it will be time for another handout.

The Rangarajan Committee which had recommended a formula for rationalising sugar prices based on market conditions, had been roundly ignored by the state government until now. This despite repeated pleas by the millers for implementation. The formula recommends that 75% of sugar price and 70% of sugar plus by-products price should be the price paid to farmers.

A committee has now been constituted, headed by the UP chief secretary to look into the possibility of rationalising cane purchase prices by linking them to the market price for sugar, but it will have no bearing on the current crushing season. Its recommendations will only be available after the 2014 Lok Sabha elections, which will enable the Samajwadi Party to neatly sidestep any electoral complications that might have arisen as a result.

The mills are estimating that they will run up losses of around ₹ 4000-5000 crore this year. This would imply that a large section of sugarcane farmers would be paid in promises rather than hard currency for yet another season. This zero-sum game could yet unravel in front of Akhilesh Yadav if the farmers don’t end up getting paid within a reasonable period. That, in turn, is dependant on the Centre’s bailout package.

It’s a cycle which goes on and on, with no end in sight and is repeated every couple of years. For now though, the crisis has been averted.

UPDATE:  In a development that wasn’t entirely unexpected, sugarcane farmers, supported by the BJP,  have begun to raise hell over their unpaid dues. 

Also, as expected, Sharad Pawar has announced the details of the government’s latest bailout plan for the sugar industry. An interest-free loan amounting to Rs 7200 crore is the primary feature of the package.