Try sugar decontrol

The government must leave millers and growers alone

The sugar industry’s renewed plea to the government to unshackle it from stifling controls and regulations merits consideration. This plea is being made in the context of rising production. The sugar production cycle has bottomed out and is on the upswing. The total sugar production in the ongoing season seems likely to exceed 17.5 million tonnes against less than 15 million tonnes last year. This seems an opportune time, therefore, for de-controlling as well as de-regulating the sector. In fact, retrograde measures — these include enhancing sugar levy from 10 per cent to 20 per cent; converting the monthly sugar release mechanism to a weekly release system; imposing unreasonably low stockholding limits on the sugar trade; and reducing the inventory-keeping limit for the bulk consumers from one month’s requirement to first 15 days and subsequently 10 days — made little sense even when the prices were high and need to be reviewed and reversed now. By tightening supplies in the open market, these ill-conceived measures actually pushed up rather than eased sugar prices.

These measures have had the effect of squeezing industry margins, adversely affecting millers’ capacity to pay good prices to cane growers. The farmers would stand to lose if their price realisation declines from the very favourable levels this season. These were double, and in some cases more than double, the fair and reasonable price (FRP) of Rs 130 per quintal fixed by the Centre. They would suffer even more if they are denied prompt payment and cane price arrears accumulate. In fact, this has already happened in Uttar Pradesh. This, in turn, depresses the farmer’s income and contributes to a cyclical downturn in acreage and production growth in subsequent seasons. This is a familiar cycle that public policy has not yet been able to tackle. If more than half a century of controls have not helped, the government may as well try experimenting with decontrol and allow more freedom to market forces. The worry that decontrol may hurt the interests of cane growers is no longer warranted. Today’s millers are not the myopic rent extractors of the past. They are modern managers who have learnt the value of establishing long-term relationships with raw material suppliers.