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Bitter Plight of Sugarcane farmers in Nepal; and the Road Ahead

Sugarcane (Saccharum officinarum) is one of the most important cash crops in Nepal owing to its immense use for household consumption and industrial uses aimed at nutritional and economic sustenance. It is cultivated in more than 40 districts of Nepal, thus, occupying an area of 71,625 hectares (ha) (3,557,934 metric ton (mt) & 49.67 ton/hectare (t/ha)) (MOALD, 2020) and engaging 0.1 million farmers in commercial farming of Sugarcane. Commercial cultivation of sugarcane, started after the establishment of Morang Sugar Mill Limited in 1947, is currently practiced in scale only in 14 districts (MOALD, 2020). The overall production and the area of cultivation of sugarcane have been decreasing gradually since 2015/16. According to the statistical report of MOALD (2020), 4,840 kg of Sakhhar (Gud & Veli), Gudgatta of Sugarcane (HS code: 17011410) (NRs. 161,000) was exported while 1,249,610.5 kg (NRs. 43,647,020) was imported in 2019 which shows a huge trade deficit in the sugarcane industry. Moreover, so far out of the 31 industries in existence, only 10 sugar mills are in operation. The operating sugar mills have been consistently accusing the lack of sugarcane supply for their inconsistent operation incurring loss in business and evidently escaping from completing the dues by paying peanuts to the farmers. The sugar mills have stopped paying at all for the last few months and even years. Such a situation has compelled belligerent farmers to protest and raise their voices to request the seemingly disabled government for taking legal actions against the sugar industries. 

Sugarcane in nepal JPEG with logo
Figure 1: Sugarcane Production in Nepal in terms of Cultivated area (hectares) and Production (metric tons) (2015/16 to 2018/19)

The Ministry of Industry, Commerce and Supplies, Sugar mills and Sugarcane farmers reached a 5 point agreement on 3rd January setting 21st January as the deadline to clear all outstanding dues. The farmers have been demanding several millions to be paid from Annapurna Sugar Mills, Shreeram Sugar Mills, Lumbini Sugar Mills and Indira Sugar Mills. An astounding number of over 6,000 farmers in Sarlahi district alone await payment for their sugarcanes. A study conducted by Pandey & Devkota (2020) in Nawalparasi and Kapilvastu reported that the majority of the sugarcane farmers in Nawalparasi sold their cane to sugar-mills whereas farmers in Kapilvastu sold their cane solely to local crushers at a lower rate. Furthermore, delay in declaration of Minimum Procurement Price (MPP) that coincides with the harvesting period poses the risk of postharvest loss of sugarcane and farmers are compelled to sell the harvested sugarcane at lower prices. This is the precarious position farmers are in as the authorities have done far less than expected to alleviate the plight of the farmers despite their redundant pleas and requests. 

However, the sugar mills also claim to incur heavy losses since they are unable to run at full crushing capacity (903,155 metric tons (mt)), manufacturing only 830,255 mt of sugar (MOALD, 2020) due to poor & seasonal availability of sugarcanes and short operating season of 4 to 7 months per year (Sapkota et al., 2019). Moreover, the low recovery rate of Nepalese sugarcane (8.83% – 9.45%) (Sapkota et al., 2019) is one of the prominent concerns of sugar mills which ultimately affect the quantity of sugar produced from canes. Insufficient and poor quality supply of sugarcane, high manufacturing cost with lower margin, inefficient old machines, seasonal operation of sugar mills, expensive manufacturing ingredients, higher processing loss, and uniform price for different quality sugarcane are some of the major troubling concerns of sugar mills which need to be addressed to maintain consistent production and profitable operation of sugar mills. There is neither provision of minimum selling price for sugar nor quality testing mechanism resulting in an insecure market and higher manufacturing cost for domestic sugar. The sugar mills have also frequently urged the government to impose certain ban on sugar imports from India as the imported sugar has far lower price than the domestic sugar and thus, thousands of tons of sugar remain in stock due to lack of market for domestic sugar. Sugar mills claim to have incurred heavy losses and thus have been consistently denying paying the dues to the farmers. 

Sugarcane farmers protest
Image: Sugarcane farmers protesting on streets (Source: https://myrepublica.nagariknetwork.com/news/photos-not-paid-by-sugar-mills-for-past-six-years-cane-farmers-stage-protests-in-kathmandu/)

The Government of Nepal (GoN) has been providing subsidies on chemical and organic fertilizers, insurance services and mechanization. It has been declaring the Minimum Procurement Price (MPP) annually prior to the crop harvest and in 2019/20, the MPP was NRs 536.56 including a government subsidy of NRs 65.28 per quintal (MOALD, 2019). While farmers were demanding an increment in MPP, the sugar mills had proposed to set the price of high, medium and low quality sugarcane respectively. However, the government decided to maintain homogeneity in the prices received by the sugarcane farmers despite the quality of sugarcane. The Government of Nepal has allocated NRs 1.33 billion of budget as Value addition direct cash subsidy to the farmer in 2020. However, most of the farmers claim that they have not received the subsidy of NRs 65.28 per quintal from the sugar mills and are even being underpaid than the MPP set by the government. While the government sets a floor price/MPP for the sugarcane farmers, it has been unable to bind the sugar industries through legal actions for refusing to pay the farmers accordingly. Consequently, farmers remain unpaid for years and have been in an extremely precarious situation.

Price policy of Sugarcane in Nepal
Figure 2: Price Policy of Sugarcane in Nepal

 

The government of Nepal currently provides the direct payment of cash subsidy to the farmer incorporated within Minimum Procurement Price (MPP). MPP includes transportation cost, incurred cost of production, certain percentage of benefit to the farmers and cash subsidy of the government whereas, the Fair Remunerative Price (FRP) system of sugarcane in India includes factors like return to the growers from alternative crops, margin for growers on account of risk and profit, recovery rate, the value of byproducts, the price of sugar sold by mills and fair price of sugar to consumers, thereby, protecting the interest of farmers and rewarding suitable price for the higher sugar recovery rate. Further, the declaration of Minimum Selling Price (MSP) of sugar in India has protected sugar-mills to cover the cost of production and pay the dues of farmers (MoCAFPD, 2019) while no such Price policy exists in Nepal thus making Nepalese sugar mills and farmers vulnerable to losses. The export subsidy provided by India and Pakistan has made their sugar cheaper than Nepalese sugar. The existing market prices of subsidized sugar range from NRs 65 to 70 per kg while the price in the Indian border market is around NRs 45 per kg. At the same time, the price of sugar manufactured in Nepalese sugar mills is around NRs 87.61 per kg which is extremely high as compared to the price of sugar imported from India (NSMA, 2018). In 2017-18, a total amount of 165,132 mt of subsidized sugar was dumped as surplus stock (NSMA, 2018). Such situation has resulted in sugar mills of Nepal to incur losses in business and hence, this has become one of the major reasons claimed by the industrialists for their inability to pay their outstanding dues of hundreds of millions to the farmers. 

Farmers who must wait around a year to harvest the sugarcane, further need to wait months and even years to get the payment for their product. Amid such a crisis, sugarcane farmers are compelled to sell their produce to local crushers or middlemen at a lower rate as compared to what the ‘sugar mills’ would offer or rely on the loans from local money lenders at exorbitant interest rates. Drowned in loans, farmers are unable to procure sufficient amounts of raw materials, buy the inputs and continue the cultivation activities. The frustrated sugarcane farmers have gradually decreased the cultivated area for sugarcane after not receiving payment for their harvests on time. Sarlahi alone used to yield 1.35 million tons of sugarcane (MOALD, 2016) which decreased to 1.1 million tons in 2018/19 (MOALD, 2020) and is likely to decline further this year.

Sugarane in sarlahi JPEG with logo
Figure 3: Sugarcane Production in Sarlahi in terms of Cul;tivated Area (hectares) and Production (metric tons) (2015/16 to 2018/19)

 

The land acreage for sugarcane cultivation in Sarlahi decreased from 27000 ha (2016/17) to 22,153 ha (2018/19) i.e. around an 18% decrease in cultivated land in 4 years. The decline in production and transition to other crops is still ongoing and is likely to accelerate further until and unless farmers are to be ensured of their dues in the future. The government’s vision of prosperous Nepal is insentient as it has not been able to solve the problems of farmers albeit agriculture is the foundation of a prosperous Nepal.

Way Forward

Inevitably, the government of Nepal must make suitable changes to the current price policy of sugarcane incorporating the concerns of sugarcane farmers, sugar mills and the consumers. The Government of Nepal tried assisting the sugar mills by imposing 30% customs duty; 13% value added tax on sugar import and even imposed quantitative restriction on the import of sugar. However, it failed to convince the sugar mills to set the factory gate price at certain levels, not to mention compelling them to pay their outstanding dues to the farmers. Thus, the government must eliminate its previous incompetency to ensure the rights of farmers and the consumers as well as facilitate the proper supply of domestic sugar in the national market while reducing the import of sugar at the same time.

For solving the problem of delayed payment, Warehouse receipts financing (WRF) can improve the rural finance through relief in collateral constraints and enhance the incomes for the sugarcane farmers. This system circulates around warehouse receipts (WR), which act as the evidence for the sugarcane of the specified quality and quantity that have been deposited at particular locations by the respective farmers/depositors. WRs are issued to the farmers, traders, exporters etc. which guarantee that the holder can take delivery of the underlying commodity as well as further warrant for any value lost through theft or damage by fire and other catastrophes which is often ensured via insurance. 

Similarly, a successful intervention for alleviating the immediate need of cash and problems of delay payment could be invoice discounting. In this system, the sugarcane farmers take their produce (sugarcane) to the mill where sugarcanes are weighed, quality is tested and received from the farmer finally providing an accepted invoice stating the total value of their sugarcane. The farmers can apply for a loan up to 75% of the amount stated in the invoice using the same invoice as the collateral. After a few months, when the mills are able to pay back the farmers, the payment is deposited in the farmer’s bank account and the loan taken by the farmers are deducted by the bank along with interest it had charged leaving the remaining amount in the farmers’ account for their convenient use. So far, the Sakchyam Access to Finance for the Poor Programme (Sakchyam), funded by UKaid has launched this system in rural western Nepal and after three crushing seasons the product has led to loan disbursal of NPR 87.5 million and benefited more than 1,200 sugarcane farmers 100% repayment rate.

The production and the cultivated area of sugarcane in Nepal is decreasing and there exists a huge gap in the yield of sugarcane in research centers (up to 100 mt/ha) and farmers’ field conditions while the national average yield of 45 mt/ha is quite low as compared to India (65-70 mt/ha). It is imperative to impart better cultivation practices to the farmers and ensure the availability of inputs (fertilizers, seeds, irrigation, etc.). Similarly, the recovery rate of sugarcanes in Nepal (8.83%) is quite lower (>9% in India) and calls for a quality testing mechanism for setting price as per the quality of sugarcane. Following improved cultivation practices and a recovery rate based MPP would be momentous in increasing the productivity of Nepalese Sugarcane and motivate production of quality products as well. Alleviating the immediate plight of farmers is a mandatory one but the government has to do a lot more to ensure the rights of farmers and help sugar mills sustain at the same time.  

Conclusions

Albeit hindrances and problems in production and the supply of sugar, it is still a fraudulence on the part of sugar mills for not being able to pay the farmers for a few years. Sugar mills have agreed on the terms to complete their outstanding dues but have been revoking their promises and farmers are suffering immensely. It remains a bitter truth that farmers have been deceived by the false promises of government as well since there have been no actions against the sugar producers to ensure the rights of the farmers. The continuation of this situation might lead to a greater trade deficit of the sugar industry in Nepal and severe set-back to the aim of the government to become self-reliant in agricultural production. The farmers are bound to adopt other agriculture commodities given the situation continues to deteriorate and sugar mills are unable to clear the dues of the farmers. Hence, it is high time the government addressed the demands of the farmers once and for all. It should take immediate steps to facilitate a negotiation between the farmers and the mills and impose strict regulations on the mills that fail to clear the dues while the difficulties of sugar mills are to be alleviated in the future to resolve such conflicts. The government that hoists the slogan of ‘Prosperous Nepal, Happy Nepalese’ should realize that the road to prosperity remains treacherous until the farmers, the backbone of our country, are paid for what they deserve and are owed. Thus, it is essential to protect all the actors of sugarcane industries through effective trade and price policy which would then help to alleviate the financial crisis and boost domestic production and consumption, thereby, creating a sound economic balance in the sugarcane industry in Nepal.

References

  1. 21 Sugar Industries Shut Down In Nepal So Far. (2020). Investopaper. https://www.investopaper.com/news/sugar-industries-shut-down-in-nepal/
  2. Government determines MRP of sugarcane. (2019). The Himalayan Times. https://thehimalayantimes.com/nepal/government-determines-minimum-retail-price-of-sugarcane/
  3. Invoice Discounting. (2016). Bringing a Financial Institution and a Sugar Mill Together to Provide Financial Relief for Sugarcane Farmers in Rural Western Nepal. https://sakchyam.com.np/invoice-discounting/
  4. MOALD. (2016). Statistical information on Nepalese agriculture 2015-16. Ministry of Agriculture and Livestock Developmenthttp://moad.gov.np/public/uploads/1142453195-STATISTIC AGRICULTURE BOOK_2016.pdf
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  6. MoCAFPD (2019). Sugarcane pricing policy. Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution, Government of India, India
  7. NSMA (2018). Sugar industry crisis; Presented by Nepal sugar mill association. Nepal Sugar Mills Association, Kathmandu, Nepal.
  8. Sapkota, S., Gairhe, S., Upadhyay, N., & Acharya, Y. (2019). Problems and opportunities in sugarcane production and marketing in Nepal. December.
  9. Pandey, A., & Devkota, S. (2020). Effect of input factors and price policy in Nepalese sugarcane. Cogent Food & Agriculture, 6(1), 1–14. https://doi.org/10.1080/23311932.2020.1799532
  10. Sugarcane farmers resume protest. (2020). The Himalayan Times. https://thehimalayantimes.com/business/sugarcane-farmers-resume-protest/