Why in news?
The Cabinet has recently approved a Rs 7,000-crore bailout package for sugarcane farmers.
What is the need?
- There has been an excess production in the current sugar season.
- This has depressed the market price of sugarcane.
- It has dropped from an average of Rs.37 a kg in the previous season to Rs.26 now.
- This in turn has adversely affected the liquidity position of sugar mills.
- It has led to the accumulation of Rs 22,000-crore of cane price arrears by the sugar mills.
- Sugar mills share 70 to 75% of the revenue generated from the sale of sugar and its by-products, with cane suppliers.
- This is as per the revenue-sharing formula of C Rangarajan committee on sugar deregulation.
What are the measures in this regard?
- The Cabinet Committee on Economic Affairs (CCEA) has decided for a bail out package for the cane farmers.
- It has also set the minimum selling price for sugar at Rs 29 per kg.
- The government will procure sugar from mills at this fixed minimum price.
- This is to remove the problem of liquidity of sugar mills and help them clear their dues.
- The package comprises shares for creating a 30 lakh MT buffer stock.
- Besides this, a portion would go as soft loan for mill owners.
- This is to increase molasses and ethanol production capacity to divert surplus sugarcane.
- Additionally, another share would be towards interest subvention for the loan.
What are the concerns?
- The plan promises an assured minimum pricing of Rs.29 a kg.
- It may dissipate the sugar mills' immediate liquidity problems to an extent.
- However, sugar mills say this is below their production cost of Rs.35 a kg.
- It could help mitigate only about 40% of the outstanding arrears to sugarcane farmers.
- The production will rise again in the coming season and the extent of arrears would also rise.
- Besides, the loans and interest subsidies component will take time to materialise.
- It will not be soon enough to address the present crisis.
- The recent decision, thus, sticks to the old-style pricing and stock-holding interventions.
- It does little to address the structural flaws in the sugar sector.
- The sops-driven solution could distort the agriculture sector further.
What is the way forward?
- Continuing the complex web of state controls in a politically-sensitive sector is no solution.
- The best way is to address the problem of excess supply in the long run.
- Ensuring some linkage, between the price paid for sugarcane and the end-products it is used for, would help.
- Also, a shift to market-driven cropping decisions should seriously be considered.
Source: Business Standard, The Hindu
