In the period since 2006-07 when the country first produced a record 28.33 million tonnes of sugar and now in the aftermath of two consecutively disastrous cane harvests we have seen the wholesale price of sugar touching a low of Rs 1,315 a tonne and a high of over Rs 4,050 a tonne. On both occasions the government found itself in a fix.
If very low sugar prices would compromise the capacity of mills to clear cane bills making the government face farmers’ fury, the runaway inflation in the commodity price since mid-2009 is inviting public wrath. This is why Prime Minister Manmohan Singh and Agriculture Minister Sharad Pawar wonder as to what needs to be done to do away with the “infamous sugar cycle.” And if that is not possible, then at least to mitigate its impact to as great a degree as possible.
In times of oversupply, cane payment dues of factories would spiral into thousands of crores as were seen in 2006-07 and 2007-08. To give relief to farmers and also the industry, the government came forward with measures like creation of buffer stock at its cost, allow excise duty to be converted into interest free loans and sanction exports of sugar. The response to the present crisis spelt by shortages is on expected lines –allow Customs free imports of both raw and white sugar. But what the government is doing is nothing more than respond to the crisis at the top and bottom ends of the sugar cycle without making any meaningful attempts to come to grips with establishing a linkage between rewards for farmers for growing cane and market prices for sugar. The government will not be required to be innovative in building a model where realisations from sugar sales will be shared by growers and factories. For one, the sharing system is working seamlessly in some major cane-based sugar producing countries.
But cane being a cash crop, factories will have to make an initial payment as the feedstock is delivered at their gates. Indian Sugar Mills Association (Isma) sees in farmers’ total rewards and sugar price realisation during a season moving in tandem an effective way of controlling sharp rise and fall in sugar prices between seasons.
Merits of the linkage formula are well established. But the government here may still be chary to dispense with the minimum support price scheme for cane. Isma sees no problem in that. It says in the upside of the cycle, factories will share realisations from sugar sales with farmers in an agreed proportion. In order to sustain the interest of farmers in growing cane in a bad year for sugar, the government will have to step in with subsidy to remunerate well the cane growing community. The price sharing norm in other countries generally provides for 65 per cent of realisations from sugar sales to growers.
But working of the sugar price sharing scheme presupposes a deregulated environment. It is, however, nobody’s case that nearly 300 million people below the poverty line (BPL) should be denied sugar at a subsidised rate. Chief economic adviser Kaushik Basu says one effective way to eliminate corruption in distribution of food items through ration shops will be to give coupons to BPL people allowing them to get things from all outlets, government owned or not. The subsidy here is embedded in coupons. Stories are in legions and Basu agrees of leakages and adulteration when subsidy is not directly placed in the hands of beneficiaries. Sugar is no exception.
One sure way of sustaining the interest of growers in cane is to keep factories thriving in good and bad times for the commodity. Discontinuing the practice of taking away 20 per cent of sugar production as levy by not paying even half the production cost because of a much maligned price fixing formula will come as a big relief for the industry. The government has no answer as to why levy price be fixed taking MSP as the base when mills in UP are paying Rs 260 and more for a quintal of cane.
Also Read
This gives an idea of the burden, which should logically be of the government, placed on the industry. To add to its woes, the government has not revised levy sugar price for over five years. Mahajan committee and other expert bodies have all recommended decontrol of sugar. As the government wants the impact of sugar cycle to be less severe, it should not any longer shy away from introducing coupons for BPL people to get sugar.
Pending decontrol, the government should discourage imports of white sugar, allowed duty free in the first place as an extraordinary move to control prices. But sugar is now losing steam and the domestic industry has built large refining capacity to process raws. Isma president Vivek Saraogi wonders if this is not the appropriate time to remove “stock limit restrictions on bulk consumers and also return the industry to the monthly norm of sugar sales and despatches from the weekly practice now.”