The suggestion was made when it had recommended over 17 per cent increase in the Fair and Remunerative Price (FRP) of sugarcane for the 2012-2013 crop marketing season that starts in October. This market was accepted by the Union Cabinet last month. The FRP of sugarcane for 2012-2013 season now stands at Rs 170 per quintal.

In a report to the government, the CACP, headed by agriculture economist Ashok Gulati, said when sugar mills supplied the commodity at less than the market rate to the government to meet its PDS obligations, their own capacity to pay farmers adequate price for their produce got adversely affected.

Vinay Kumar, managing director of National Federation of Cooperative Sugar Factories, said, “We have always suggested that the levy obligation needs to be removed. It is not a healthy practice to burden the industry with government welfare measures.”

The government supplies around 2.8 million tonnes of sugar to BPL families and to defence and paramilitary forces at rates much below the market price. For this, the government purchases the commodity from mills at below the market rate. “This amounts to a subsidy of about Rs 7,000 per tonne, and about Rs 1,900 crore for distribution of 27 lakh tonnes in PDS (excluding supply to Army Purchase Organisation). This is primarily being borne by the sugar industry, but consequently is borne by farmers, as the industry cannot pay them higher price partly due to the levy obligation,” the report said.

The Commission said if this option was not possible for the Central government, alternatively, the state governments might be authorised to procure sugar from the open market for PDS distribution and then give a fixed subsidy depending on the distance of the consuming states from the producing states.

“FCI may continue to serve difficult areas if the state governments concerned desire it. Paramilitary forces may procure sugar from the open market like they do for other commodities,” the commission said.

It, however, warned that if the difference between the open market price and the PDS price of sugar was more than Rs 5-7 a kg, it might lead to diversion.

The commission also advocated the creation of buffer stock of two million tonnes of sugar, and use export and import duties to keep a lid on volatile price movement in the commodity. “The sugar reserve of two million tonnes can be procured through e-auction by a central agency like the Food Corporation of India or Central Warehousing Corporation,” the commission said.