Agriculture

KEY POINTS

Problems faced by the Sugar sector

a)     High output that is well in excess of domestic needs

b)     Fall in international prices

c)      These left the farmers with unpaid arrears from sugar mill owners

·        To address the challenges, the Union Cabinet approved a 70 billion rupees bailout package for the sector which also includes –

a)     3-million-tonne buffer stock (for a year)

b)     Fixing sugar floor price at Rs. 29/Kg

c)      Incentivising ethanol capacity additions

·        But, it will offer only temporary palliatives without addressing the root cause of the sugar economy’s deteriorating fortunes.

·        There is no link between the input (sugarcane) cost and the output (sugar and its by-products). Prices are arbitrarily announced by the government.

·        It did little to address this structural ailment of a lack of market linkage.

·        This essentially means there is no signalling of changing demand and supply conditions in the sugar economy.

·        That is why the sector is stuck in a never-ending cycle of imbalances, the worst sufferers of which are the farmers.

·        Meanwhile, even after removing 3 million tonnes of sugar for the buffer, the 2018-19 season will open with a large stock of sugar due to excessive output.

·        The move to create a buffer stock is a good one. But the government will not be bearing the entire cost of the stock, only the carrying cost.

Solution

·        The Rangarajan committee on sugar deregulation argued for shifting to a revenue-sharing mechanism between farmers and millers and linked the fair and remunerative price for sugarcane to yearly realisations from sugar and its by-products, through a fixed formula.

·        But only a few states have accepted this, while others continue to indulge in competitive populism with the centre to steadily peg up cane prices, ignoring market realities.