Incentivising cane growers: Price stabilisation fund on Centre's agenda

With sugarcane arrears continuing to remain a major issue, especially in politically sensitive western Uttar Pradesh, the central government, along with NITI Aayog, has started working on a mechanism to create a price stabilisation fund to compensate growers in years of low price. It has also suggested tweaking the C Rangarajan formula of revenue sharing, based on recovery levels.

A formula for incentivising those farmers who grow sugarcane with a higher-than-average recovery rate, along with staggered cane payment schedule, is also being looked into.

Recovery rate is the amount of sugar a sugarcane fetches - higher the quantum of sugar derived from sugarcane, greater is the price it fetches in the market.

Sources said the first meeting of a panel constituted to look into various issues pertaining to the sugar sector was held sometime back.

Discussions were also held on the shape and structure of a price stabilisation fund. The views of all the line ministries on other issues concerning the sector, along with modalities for payment of cane price to farmers in instalments, were sought.

The ministries of agriculture, food, commerce, finance, and petroleum, the Aayog and state representatives were part of the panel.

On the price stabilisation fund, sources said such a fund is being mooted to bridge the gap between fair and remunerative price (FRP) and the liability of sugar mills, based on the revenue-sharing formula.

This will ensue that in years when sugar and by-product prices are not remunerative, mills don’t face losses.

A senior industry executive said the FRP of sugarcane season 2020-21 - at a base recovery of 10 per cent - has been fixed at Rs 285 per quintal.

According to the revenue-sharing formula - as suggested by former chairman of the erstwhile Prime Minister’s Economic Advisory Council, C Rangarajan - the FRP liability should be much lower, given sugar prices haven’t risen since the law.

To ensure farmers are not deprived in case of lower FRP, the Aayog in a report has recommended a special price stabilisation fund. The Commission for Agricultural Costs and Prices, too, in several of its past reports had favoured such a stabilisation fund.

Sources said the agriculture ministry in its submission on the fund at the meeting was of the view that its repercussions on World Trade Organization agreements and final price of sugar must be kept in consideration.

However, there is not much clarity yet on how the proposed fund will be financed.

The revenue-sharing formula had suggested fixing sugarcane price at 70 per cent of the revenue realised from the sale of sugar and its by-products and 75 per cent from the revenue realised if only sugar is taken into consideration for calculation.

The Aayog in its report on the sector submitted last year had suggested this revenue-sharing formula needed to be tweaked upwards to 75 per cent for revenue realised from sugar and by-products and 80 per cent purely from sugar because of improvement in recovery rates over the year.

“The prices of sugarcane may need to be adjusted slightly upwards, keeping in view the improvement in recovery rates in the past few years i.e., between the reference period of the Rangarajan Committee recommendations and the current period. Thus, in place of 70 per cent price of sugar and by-products and 75 per cent price of sugar only, the pricing formula can be 75 per cent of sugar and by-products and 80 per cent of sugar price,” the Aayog had said.

This formula can be implemented prospectively, say from sugar season 2020-21 or 2021–22, it added.