Centre readies field for common cane price

The distortion in sugarcane prices in producer states is likely to be corrected with the Union government working towards a national price. Agriculture Minister Sharad Pawar has called a meeting of state sugarcane and finance ministers on October 3 for this.

"The government is concerned at the impact of the difference on the sugar industry, which is also hurting the cane-growers as the industry has not been able to pay the arrears," said a food ministry official. Total cane arrears amount to around Rs 3,000 crore, with Uttar Pradesh accounting for almost half this amount.

A common price will address a huge problem facing the sugar industry. While the Centre fixes a minimum price for sugarcane at the beginning of every season, states add to this, allegedly keeping electoral exigencies in mind. In 2004, both the Supreme Court and the Allahabad High Court upheld the right of state governments to fix sugarcane price over and above the statutory minimum price (SMP) announced by the Centre.

Consequently, states like Uttar Pradesh, Karnataka and Haryana have been steadily revising the state advised price (SAP) every year to please the sugarcane farmers, who constitute a sizeable votebank. This SAP is usually much higher than the SMP. In Uttar Pradesh, for instance, the difference between SMP and SAP was as high as Rs 40 per quintal this year. When sugar prices were high, mills had no problem with the formula. However, with sugar prices crashing, the sugar mills have been incurring huge losses. The central government can do away with the SAP only through a legislation.

The sugar industry is facing its worst crisis with the mills unable to recover the cost of sugarcane. This year's production, at 28 million tonnes, is 45 per cent higher than last year's 19.2 million tonnes.

Consequently, sugar prices have crashed and most companies have reported a loss in the past two quarters. Most sugar stocks are trading at their all-time lows. The worst is yet to come. Prices are expected to fall further with yet another record production, over 30 million tonnes, projected for the 2007-08. Annual domestic demand is around 20 million tonnes.

The meeting will also discuss the changes required in the Central Sales Tax Act, 1956, to include ethanol in the list of goods of special importance, just like cereals, coal, cotton, crude, oil, iron, steel, oilseeds, jute, pulses and sugar. This will prevent states from imposing any tax on ethanol and expedite the ethanol-blending programme.