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Rationalising Cane Pricing Policy

January 24, 2018
9 months

What is the issue?

The mismatch between price of sugarcane and that of sugar calls for implementing the suggestions of CACP.

What is the anomaly in price support?

  • The Cabinet Committee on Economic Affairs approves the Fair and Remunerative price (FRP) for sugarcane.
  • FRP is the minimum price that the sugar mills have to pay to farmers.
  • FRP does protect the farmers by deciding the price of sugarcane.
  • But on the other hand, sugar prices are determined by market sentiments and market forces, causing unfavourable effects.

How does it impact?

  • Farmers - The high FRP of sugarcane results in over-production of cane and ultimately surplus sugar.
  • This could, in turn, cause sugar prices to fall below cost levels.
  • The resultant burden of the loss falls on the sugar mills.
  • This eventually leads to delays or defaults in making payments to the farmers.
  • Export - Too high a price for cane makes Indian sugar uncompetitive globally.
  • E.g. Indian cane prices are 70-80% higher than that in Brazil.
  • Thus, exporting the surplus from India too becomes harder.

What is desired?

  • The government’s protection with a remunerative cane price and assured buyer is unquestionable.
  • However, the anomalies call for rationalisation of the cane-pricing policies in tune with global practices.
  • This is especially to facilitate Indian sugar industry to export the surplus favourably.
  • The governments (including states) should take roles beyond cane-price fixing.
  • The government will have to offer interest-free loans, subsidies and incentives, etc for production.
  • Special efforts would also be needed to dispose off the surplus sugar.
  • This is essential to keep sugar prices at adequate levels and ensure cane-price payments on time.

What are the recommendations of the CACP?

  • Some of the suggestions made by the Commission for Agricultural Costs and Prices (CACP) in this regard include the following:
  • Farmers should be guaranteed a minimum cane price at the level of FRP.
  • In addition, the liability of sugar mills will be restricted as per a revenue sharing formula (RSF).
  • Accordingly, 75% of revenue realised from sugar will be the cane price payable by mills.
  • If the cane-price, as per RSF, is more than FRP, the farmers get a second instalment over and above the FRP.
  • When sugar prices are depressed, the price as per RSF may work out to below FRP.
  • The gap would then be paid directly to the farmers from a fund created by the government (government is yet to approve it).
  • Benefits - The sugar mills will pay farmers as per their revenue realisation and pay on time.
  • Farmers get cane price at least at the level of FRP, or more with better sugar prices, instead of the current system of giving farmers only FRP.
  • It will also keep cost of production reasonable, ensuring that Indian sugar is competitive globally to allow exporting the surplus.


Source: Financial Express

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