Reports of frustrated sugarcane farmers resorting to violence and sugar mills drowning in debt should not come as a surprise. It was a foregone conclusion that the highly regulated sector, where politics and not economics is at the heart of its pricing mechanism, would eventually break down. UPA's 'informal group' under the leadership of agriculture minister Sharad Pawar, which has been tasked to find a solution, knows well that the time of half measures has passed. The world's second largest sugar producer can no longer afford to have politicians arrogate to themselves the process of price discovery between 50 million cane farmers and sugar mills.

The sugar sector has been distorted by a complex set of controls which even determine which sugar mill a farmer can sell to. On top of this convoluted control regime, both Centre and states have the right to set the price at which mills have to buy sugarcane, bringing the virus of competitive politics into a purely economic process. Consequently, we have the current problem where mills refuse to buy cane ready for harvest as state governments such as Uttar Pradesh and Karnataka have set a price mills deem unviable. Farmers who have already invested in the crop and some of whom are yet to be paid fully for earlier harvests are, entirely unsurprisingly, restive.

What is the way forward? Pawar's group needs to transition the sector to a market-led pricing model. The best solution is the one that has been put forth by C Rangarajan and others within the government. First, persuade the states to stay out of pricing. Subsequently, use Centre's price recommendation as a floor price that mills need to pay farmers and let the market price of sugar decide the additional amount farmers need to get. This will allow prices to serve as a signalling, and not patronage, mechanism. Let's stop trying to make five by adding two and two.