Nothing substantial seems to have emerged from the high-level meeting convened by Prime Minister Narendra Modi to resolve the ongoing sugar crisis, one marked by a liquidity crunch in the sugar industry and build-up of unpaid cane price arrears of over Rs 14,000 crore. The meeting, attended by representatives of the sugar industry, cane-growers and the relevant ministers, merely resolved to intensify efforts to implement the measures that have already been mooted in the sugar "packages" announced by the government in recent months. The key ones among them include export of surplus sugar to address domestic over-supply, and an increase in mixing ethanol with petrol from the present two per cent to five per cent to begin with and 10 per cent subsequently.
Neither of these will help. The export target of four million tonnes of sugar is unlikely to be met, given ample supply and subdued prices globally. This is largely the result of surplus sugar output in other major exporting countries and shrinkage in its diversion to biofuel sector because of low crude oil prices. Even the fiscal incentives offered by the government have not helped much in boosting sugar shipments. Similarly, the proposed higher mixing of ethanol with petrol is economically unattractive because of prevailing low oil prices and the sugar industry's demand for higher prices for ethanol.
The genesis of the recurring crisis in the sugar sector which hits both sugar mills and cane growers can really be traced to half-hearted reforms and ill-advised cane pricing policies. As a result, sugar output has consistently exceeded demand for several years, and its prices have experienced constant downward pressure. In most sugar-producing countries, the prices of sugarcane and sugar are inter-linked; but there is no such correlation in India. While the cost of sugar production has steadily been rising due to increases in both the fair and remunerative prices (FRP) fixed by the Centre and the state-advised prices (SAP) enforced by the states, the prices of sugar itself have been on the slide. The mills are, moreover, obliged to crush all the cane that is on offer from the cane catchment areas allotted to them. This has encouraged farmers to produce more sugarcane - totally disregarding its adverse impact on groundwater.
A lasting solution for the sugar sector's woes, therefore, lies in ending the current disconnect between the prices of input (sugarcane) and output (sugar and other byproducts). The way to go about it has been spelt out clearly in the Rangarajan committee report. The two-phased cane price payment system mooted by this panel involves paying the FRP to the farmers at the time of the cane delivery and adjusting it later against the final payment amounting to 70 per cent of the total revenue generated from the sale of sugar and its byproducts. Such a pricing formula would strike a balance between the prices of sugar and sugarcane, on the one hand, and between the demand and supply of sugar on the other. The acreage under sugarcane would also tend to match the requirement of cane by sugar, khandsari and other sectors, releasing land for the cultivation of other crops that are in short supply. Karnataka has already begun to implement such an arrangement to the benefit of the sugar sector in that state. The other sugar producing states would do well to emulate its example.
