The root factor that disturbs the balance and adversely hits the sugar mills and farmers is the mismatch between the sugar price and sugarcane price. Suggest suitable measures to reduce this mismatch.
Refer – Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 7 years
KEY POINTS
Mismatch between Sugar and Sugarcane prices
· The government does well to protect farmers by deciding the price of sugarcane, called the fair and remunerative price (FRP).
· But on the other hand, sugar prices are determined by market forces, and the government can’t have much direct control over it.
· Everything remains good until the high FRP of sugarcane results in over-production of cane and sugar.
· If that in turn causes sugar prices to fall below cost levels, the mills incur losses, leading to delays/defaults in payments of farmers.
· Falling sugar prices are directly linked to market conditions, especially when there is surplus sugar.
· Exporting the surplus from India is not easy because of the burden of very high cost of sugarcane, pushing up the costs of sugar.
· For a comparison, Indian cane prices are 70-80% higher than that in Brazil.
· This necessitates India to immediately rationalise the cane pricing policies and brought in tune with global practices, for Indian sugar industry to export the surplus successfully.
Suggestions
· Indian cane-farmers are mostly small and marginal, and therefore, the government’s attempt to protect them with a remunerative cane price and assured buyer cannot be questioned.
· Recommendations suggested by the Commission for Agricultural Costs and Prices (CACP) would be worth to implement, which as follows –
a) Farmers should be guaranteed a minimum cane price at the level of FRP.
b) Liability of sugar mills will be restricted as per a revenue sharing formula (RSF), such that 75% of revenue realised from sugar (including weightage of 5% for other primary by-products) will be the cane price payable by mills.
c) If the cane-price, as per RSF, is more than FRP, the farmers get a second instalment over and above the FRP.
d) If the price as per RSF works out to below FRP (which will happen when sugar prices are depressed), the gap would be paid from a fund created by the government, directly to the farmers.
· The obvious way to collect funds in such times of distress would be to levy an additional cess, whenever the need arises.
· Meanwhile, consumers will not get burdened with this additional tax/cess, because the same would be levied or collected only in the years when the ex-mill and wholesale sugar prices are low.
· It means that sugar mills will pay as per their revenue realisation, i.e., as per their paying capacity. Therefore, farmers will get paid on time.
· It will also keep cost of production reasonable, ensuring Indian sugar is competitive globally to allow exporting the surplus.
· Such a linkage formula between cane-price and revenue realisation from sugar is universal, given it is followed in almost all sugar-producing countries, and will put Indian industry on a par with other global players.
