The Centre’s decision to effect an 11 per cent increase in the Fair and Remunerative Price (FRP) for sugarcane for the upcoming sugar season (October 2017-September 2018) is a contentious one. Yes, as the country’s sugar output is set to plummet to a seven-year low of 203 lakh tonnes (2016-17), domestic availability of the sweetener is expected to be tight this year. Budgeting for offtake of about 240 lakh tonnes, the season is expected to close with just 40 lakh tonnes of stock by September, which will mean a precariously balanced market until crushing resumes in October/November 2017. It is this tight equation that has led to sugar prices spiralling up in recent months. The decision to hike the FRP appears to be an attempt to incentivise farmers to plant more cane for the upcoming season. But if higher output does moderate prices, it may not have very happy consequences for sugar millers or even the farmers whom this FRP hike is ostensibly intended to benefit. The sugar industry has only this year turned profitable, after six consecutive years of debilitating surpluses. It is well-known that when realisations turn unviable, the industry cuts back on procurement and delays farmer payments, running up huge cane arrears.
It is high time the Centre abandoned its ineffectual attempts to juggle the interests of consumers, farmers and millers through myriad market interventions. Take the FRP, which is supposed to signal to farmers the need to plant more or less cane for the coming year. While successive governments have been prompt to hike the FRP in deficit years, they have shied away from slashing it in surplus years. Between 2010-11 and 2017-18, despite excess production in most years, the FRP for cane has nearly doubled from ₹130/quintal to ₹255/quintal. Contrarily, they have been wary of allowing higher cane prices to reflect in the end-product. Sugar prices in the same period have barely risen 30 per cent, leading to a loss-making industry and unpaid cane dues. Given that sugar is the only agri-commodity where the industry bears the subsidy burden for the ‘support’ price announced by the Centre, this situation is clearly untenable. The only way to resolve this mess is for the Centre to implement long-overdue reforms and allow cane prices to be decided by a market-based formula that shares revenue between millers and farmers in a pre-decided proportion, as suggested by the C Rangarajan committee. This should be accompanied by dismantling draconian cane area reservations that force farmers to sell their output to a single mill.
Allowing cane prices to respond to market forces is also critical to ensure that alternative food crops get equal priority when farmers make their sowing decisions. Given the paucity of both water and arable land, India can ill-afford to divert both resources to produce a commodity that is frequently over-supplied. Profiteering can always be curbed by imports.