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News
Rationalise cane pricing policy
Date:
23 Jul 2016
Source:
The Financial Chronicle
Reporter:
Abinash Verma-DG, ISMA
News ID:
5782
Pdf:
Nlink:
Centre must play key role between industry & farmers when sugar prices fall
The Indian sugar industry pays the highest price for sugarcane in the world. Indian mills pay 80 per cent more than what mills in Brazil pay. If one considers the state advised price fixed by five Indian states, the prices here would be over 100 per cent higher than in Brazil.
As surgarcane price accounts for 70 per cent to 75 per cent of the cost of producing sugar, higher cane prices make Indian sugar uncompetitive in the global market. Therefore, in years of surplus cane production, surplus sugar is either exported at a loss or the mills are forced to carry higher inventory. In both these situations, the mills do not have enough cash flows or funds to pay the farmers on time.
Following the steep hike in the fair and remunerative price (FRP) in the years between 2011-12 and 2014-15, sugarcane growers earned more than one-and-a-half times the returns they got from competing crops such as wheat, paddy and cotton. This resulted in surplus cane production continuously from 2010-11 to 2015-16. With the remuneration continuing to be high, we expect higher cane availability in 2017-18 as well, after a one-year lull when output fell in the 2016-17 (October-September) season owing to drought like situation in some parts of the country.
The glut in cane output in the past successive years depressed sugar prices to almost 60 per cent of the production cost in 2014-15, eventually leading to historically high arrears of Rs 22,000 crore in April 2015.
The arrears ballooned because while the mills generate at least 85 per cent of their revenue from sugar, its retail prices did not match up with the high cost of cane despite surplus production. This also resulted in huge defaults in loan repayments by the mills.
Rationalising the cane pricing policy seems to be the only solution to the problem of mounting arrears that not only burden the farmers, but also the mills. Globally, cane pricing is automatically determined on a formula based on the revenue realised from the sale of sugar and other primary byproducts.
Generally called the revenue sharing model or cane price — sugar price linkage model, this has been strongly recommended by the expert committee on sugar under C Rangarajan in its report of 2012.
The commission on agricultural costs and prices (CACP) tasked to study and recommend prices for several crops, including sugarcane, has also re-emphasised the need for such a formula in the past two years. In fact, CACP has even gone a step forward and recommended that the government should step in during times of depressed sugar prices to bridge the gap between what the industry can afford to pay the farmers, based on revenue realisation, and the FRP that the government wants the farmers to earn.
This differential can be paid from a price stabilisation fund (PSF), to be funded by a sugar cess when the market is depressed. Such a step can protect both the farmers and the sugar industry, CACP has said.
These recommendation must be immediately accepted by the government, for the right reasons, and implemented across the country.
This will not only result in a financially viable sugar industry, which pays affordable cane prices on time, farmers too would be assured of remunerative prices, without burdening consumers who would need to pay a small cess at times when sugar prices are depressed.
The only loss to the government would be the unreasonable and unjustified political one-upmanship that parties resort to in order to pamper farmers at the expense of industry.
The Maharashtra and Karnataka governments have accepted a revenue sharing model that has been working fine. All they need to do now is to introduce the price stabilisation fund. Several farmers’ bodies have also voiced their support for such a rationalised pricing formula and have filed a PIL in the Supreme Court demanding the same.
If two of the three biggest sugar producing states can adopt the revenue sharing or linkage formula, there is no reason why the other states cannot follow suit.
Neither is there any justification for the Union government to hesitate in adopting a similar model.
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