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Bailout Package for Sugarcane Farmers

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June 16, 2018

Why in news?

The Cabinet has recently approved a Rs 7,000-crore bailout package for sugarcane farmers.

What is the need?

  • There has been an excess production in the current sugar season.
  • This has depressed the market price of sugarcane.
  • It has dropped from an average of Rs.37 a kg in the previous season to Rs.26 now.
  • This in turn has adversely affected the liquidity position of sugar mills.
  • It has led to the accumulation of Rs 22,000-crore of cane price arrears by the sugar mills.
  • Sugar mills share 70 to 75% of the revenue generated from the sale of sugar and its by-products, with cane suppliers.
  • This is as per the revenue-sharing formula of C Rangarajan committee on sugar deregulation.

What are the measures in this regard?

  • The Cabinet Committee on Economic Affairs (CCEA) has decided for a bail out package for the cane farmers.
  • It has also set the minimum selling price for sugar at Rs 29 per kg.
  • The government will procure sugar from mills at this fixed minimum price.
  • This is to remove the problem of liquidity of sugar mills and help them clear their dues.
  • The package comprises shares for creating a 30 lakh MT buffer stock.
  • Besides this, a portion would go as soft loan for mill owners.
  • This is to increase molasses and ethanol production capacity to divert surplus sugarcane.
  • Additionally, another share would be towards interest subvention for the loan.

What are the concerns?

  • The plan promises an assured minimum pricing of Rs.29 a kg.
  • It may dissipate the sugar mills' immediate liquidity problems to an extent.
  • However, sugar mills say this is below their production cost of Rs.35 a kg.
  • It could help mitigate only about 40% of the outstanding arrears to sugarcane farmers.
  • The production will rise again in the coming season and the extent of arrears would also rise.
  • Besides, the loans and interest subsidies component will take time to materialise.
  • It will not be soon enough to address the present crisis.
  • The recent decision, thus, sticks to the old-style pricing and stock-holding interventions.
  • It does little to address the structural flaws in the sugar sector.
  • The sops-driven solution could distort the agriculture sector further.

What is the way forward?

  • Continuing the complex web of state controls in a politically-sensitive sector is no solution.
  • The best way is to address the problem of excess supply in the long run.
  • Ensuring some linkage, between the price paid for sugarcane and the end-products it is used for, would help.
  • Also, a shift to market-driven cropping decisions should seriously be considered.

 

Source: Business Standard, The Hindu

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