Making cane able

Ensure fair, remunerative price with supply stability

On the face of it, the new sugarcane policy is aimed at bringing about uniformity in cane prices throughout the country. The policy replaces the central government’s statutory minimum price (SMP) with a fair remunerative price (FRP) and says that if state governments wish to fix a higher price, they will have to pay for it. The amendment of Sugarcane (Control) Order, 1966 will discourage states from fixing a state advised price (SAP), which is higher than the SMP — this will help provide a level playing field to the sugar industry in states which regularly declare SAPs (Uttar Pradesh, Punjab, Haryana, Tamil Nadu and Uttarakhand) in comparison with its counterparts in states where this isn’t done. At the same time, the new policy also helps the Centre achieve another objective. Had this amendment not been made, thanks to a recent Supreme Court ruling, the Centre would have had to pay higher prices to sugar mills which have paid a higher SAP to cane growers. Going by the sugar industry’s estimates, arrears for such payment alone would exceed Rs 10,000 crore.

It is doubtful as to whether the new pricing mechanism will go down well with the entire industry. Sugar mills don’t always mind paying an FRP as they, in any case, often end up paying cane farmers a price higher than the SMP in order to ensure the cane doesn’t get diverted to gur and khandsari units. Mills have a stake in ensuring stability of supply in normal years. Farmers suffer when there is a cane glut, and mills suffer when there is shortage. Ensuring long-term supply contracts helps both. When cane arrears pile up, for whatever reason, farmers shift from cane to other crops and this, more than anything else, is what really hurts the industry. This is exactly what triggered the present sugar crisis — after a three-year phase (2005-06 to 2007-08) of a consistently good crop, there was a fall in cane acreage and an increase in sugar prices since the last season (2008-09).

While the SMP was fixed on the basis of the recommendations of the Commission for Agricultural Costs and Prices, the government has not spelt out the criteria used for fixing the FRP. This has led cane farmers to believe that the idea is to deny them a fair price. The SAP is invariably higher than the SMP, but in even states that don’t have an SAP, sugar mills are currently paying farmers prices ranging from Rs 140 to Rs 200 a quintal as compared to the SMP of Rs 107. The FRP, which is yet to be announced, is unlikely to be that high. In other words, the government’s policy shift is likely to leave the sector sharply divided. Given that sugar prices are very high and are unlikely to fall in view of the none-too-encouraging crop prospects, introducing the FRP at this time may seem inopportune. However, an indicative FRP is the best option for a crop cursed by price and production cycles.