The bitter struggle behind sweet sugar: Is the industry on the verge of collapse?

Sugar mills are crushing farmers instead of sugarcane, while the successive governments stand as mute spectators secretly serving the crony capitalists while ignoring the farmers who are fighting for justice.

NL Today

  • Read Time 5 min.

Kathmandu: On December 15, 2020, Narayan Raya Yadav, 64, left his family of three sons and wife with hundreds of others for Kathmandu. The purpose was to stage a protest, demanding payment sugarcane mills owe to cane farmers.

Sugarcane mills owe Rs 900 million to cane farmers. It has been almost nine years since the cane received payment for their yields.

After protesting for 15 days in the chilly weather of Kathmandu, farmers returned home empty-handed. The protesting cane farmers had called off their indefinite protest after the government assured that it would get the defaulting sugar mills to pay outstanding dues within 21 days.

During the protest, Yadav died of a heart attack. Yadav, who came to Kathmandu to protest against the cane mills, returned to Sarlahi in a coffin. 

Had the sugarcane mills paid outstanding dues to farmers after the government’s assurance, cane farmers would not have to come to Kathmandu demanding the payment. In 2021, the cane farmers again came to Kathmandu demanding mills clear the dues. The ‘betrayed’ farmers came to Kathmandu demanding Rs 250 million of outstanding dues.

Although the cane farmers are just demanding rewards for their hard-earned production, the government seems to be reluctant in solving the issue. The cane mills still owe Rs 80.27 million to farmers. 

Should cane farmers again opt to protest for payments? 

Crony Capitalism 

The failure of the government to ensure justice for farmers has raised many questions. Why was the government unable to deliver justice to these poor cane farmers? Why was the government unable to hold the mill owner accountable for not clearing the dues? Why is the government reluctant to take action against mill owners?

The answer is simple: Crony capitalism. 

These crony capitalists exercise immense political clout over local government bodies as they fund political candidates during elections. Furthermore, some of the owners are political leaders themselves.

Diwakar Golchha, one of the largest sugar manufacturers,  was a member of the federal parliament representing Nepali Congress. Similarly, Birendra Kanodia, one of the sugar manufacturers implicated in the current controversy, is also a Nepali Congress leader. With immense political influence and financial resources at their disposal, they can easily sway decisions in their favor. This is evident from the fact that sugar mill operators were able to persuade the government to raise the customs duties on imported sugar to 30 percent in 2018 and 40 percent in 2019. 

Furthermore, despite having stocks piling up in their warehouses as a result of cheap sugar imports from India, these factory owners were also able to influence the government to impose a sugar import quota of 100,000 tons annually in 2018. The imposition, which was supposed to last until mid-April that year, was extended until mid-July after extensive lobbying by the mill owners. Following the imposition of quotas, these mill owners formed a cartel to raise sugar prices from Rs 60 per kg to Rs 80-85 in the run-up to Dashain, Tihar, and Chhath festivals, when demand for sugar skyrockets. Actually, the demand for sugar during the month-long festival window soars to 30,000 tons from normal monthly consumption of 8,000 tons. 

Sugarcane farmers are still subjected to the same fate of having to struggle to get the payments for the sugarcanes–something they should be provided without asking for it. 

As a result, customers were not only forced to pay exorbitant prices for the daily necessity, but their health was also jeopardized, as sweet shops resorted to using substandard products as sugar substitutes in the face of rising prices.

Atrocities committed by the sugar mills do not end here. Beginning in 2018, the government began fixing a floor price for sugarcane in an effort to end the annual conflict between sugarcane farmers and sugar producers over the floor price. However, in addition to delaying payments, the sugar mills have been paying farmers at a lower price than the quoted floor price and also have been denying subsidies of Rs 65.28 per quintal, or a total of Rs 1.32 billion, that the government provides to farmers through the sugar mills.

Government does nothing  

Has the government done anything about it? Absolutely nothing. It has turned into a mute spectator. Given that sugar mills have been robbing farmers of their subsidies, the government should be providing these subsidies to the farmers through the banks. But it has not.

The government itself has also been turning a blind eye to the farmers’ plight to raise the floor price for years, while sugar mills have been allowed to sell their product at a staggering rate of Rs 90-100 per kg, up by 53 percent from just a year ago. Furthermore, much to farmers’ chagrin, but delight to the mill owners, the government has habitually been announcing the floor price of sugarcane one or two months after the harvest in November, resulting in massive post-harvest losses for farmers. Since sugarcane cannot be stocked, the delay in setting the price causes the sugarcane to dry up in the fields. Therefore, farmers have had no other option but to sell sugarcane at a very low price to the mills or risk losing their entire harvest.

Frustrated by the lower price, perennial hassle in payments, and the government’s apathy, more than half of the sugarcane growers have switched to cultivating other crops. According to the Federation of Sugarcane Producers Association, sugarcane would be cultivated in around 18,000 bighas (one bigha= 6772.41 square meters) 20 years back but now it has been reduced to 6,500 bighas of land and output has declined by 50 percent. As a result, sugar mills, which have the capacity to crush 100,000 tons of cane a day, have hardly been crushing 10,000 tons per day and out of the 10 operating sugar mills in the country, four sugar mills have remained closed since last year and the rest have hardly been operating at 10 percent of their actual production capacity. 

According to the industry experts, if the current situation continues the sugar industry, which is the largest commercial cash crop contributing 2.1 percent to the GDP of Nepal and the main income source to more than 100,000 active sugarcane farmers, will collapse in three to four years, forcing the country to become dependent on imports for sugar, which has an annual demand of approximately 250 thousand metric tons, translating to anywhere between Rs 12 billion and Rs 25 billion per year depending on price fluctuations.

This content is prepared by Nepal Invests. It facilitates and empowers all investors within the country and abroad to establish, operate and expand their businesses in Nepal. It tweets as @Nepal_Invests

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