Addressing Sugar Sector Crisis

What is the issue?

• The sugar sector is beset with a crisis with high production, low prices and accumulation of sugarcane price arrears.
• It calls for swift actions from the Centre and State governments to address this.

What are the concerns?

• The crisis is part of the cycle of ups and downs in the supply and prices of sugarcane and sugar.
• Sugarcane price arrears payable by mills to farmers have been accumulating.
• The total unpaid dues of farmers crossed Rs 160 billion in March-end, 2018.
• It reflects a liquidity crunch in the sugar industry.
• Also the financial deprivation of farmers who have already supplied their produce to factories is obvious.

What are the measures taken?

• Measures - A series of measures were taken by the Centre to balance the high production.
• This was done through exports and stabilising sugar prices.
• The measures include:

1. doubling of import duty
2. abolition of export duty
3. mandatory export of 2 million tonnes of sugar
4. fixing the quota of sugar that each mill can sell in the domestic market

• Government's market measures have achieved little because of the slump in the international market.
• Such piecemeal moves are unlikely to bring in a lasting solution.

What are the Rangarajan committee recommendations?

• The C Rangarajan committee report has made recommendations on sugar deregulation (Click here to know more).
• The Centre has accepted the report in 2013 and implemented some of the recommendations.
• These include lifting the levy on sugar production and doing away with the monthly release mechanism for open market sale.
• States - The relatively more crucial recommendations of the committee were left to the states to accept and implement.
• However, the states' pace of action in this regard leaves much to be desired.
• The most pertinent recommendation is to abandon the system of state advised prices for sugarcane.
• It was suggested to be replaced with the revenue-sharing formula.
• Under this, 70 to 75% of the revenue generated by the mills from the sale of sugar and its by-products is shared with cane suppliers.
• It balances the interests of cane producers and the sugar industry.
• It lets the production of both sugarcane and sugar to be dictated by market demand.
• This has not been conceded by most states, barring Maharashtra, Karnataka and, recently, Tamil Nadu.
• Farmers - The farmers are now turning suspicious of the revenue-sharing formula.
• The apprehension is that sugar factories always show losses or very little profits.
• This denies the farmers their legitimate stake in the revenue.

What is desired?

• A sound long-term strategy is the need of the hour.
• Linking the prices of inputs (mainly sugarcane) with those of the output (sugar and by-products) is crucial.
• States have to act swiftly in implementing the C Rangarajan committee report suggestions.
• The revenue-sharing model, indeed, holds the key to production and price stability in this sector.
• Better supervision and audit of sugar mills’ accounts is imperative to restore the farmers’ confidence in revenue sharing formula.

Source: Business Standard