Rationalising Cane Pricing Policy

What is the issue?

The mismatch between price of sugarcane and that of sugar calls for implementing the suggestions of CACP.

What is the anomaly in price support?

• The Cabinet Committee on Economic Affairs approves the Fair and Remunerative price (FRP) for sugarcane.
• FRP is the minimum price that the sugar mills have to pay to farmers.
• FRP does protect the farmers by deciding the price of sugarcane.
• But on the other hand, sugar prices are determined by market sentiments and market forces, causing unfavourable effects.

How does it impact?

• Farmers - The high FRP of sugarcane results in over-production of cane and ultimately surplus sugar.
• This could, in turn, cause sugar prices to fall below cost levels.
• The resultant burden of the loss falls on the sugar mills.
• This eventually leads to delays or defaults in making payments to the farmers.
• Export - Too high a price for cane makes Indian sugar uncompetitive globally.
• E.g. Indian cane prices are 70-80% higher than that in Brazil.
• Thus, exporting the surplus from India too becomes harder.

What is desired?

• The government’s protection with a remunerative cane price and assured buyer is unquestionable.
• However, the anomalies call for rationalisation of the cane-pricing policies in tune with global practices.
• This is especially to facilitate Indian sugar industry to export the surplus favourably.
• The governments (including states) should take roles beyond cane-price fixing.
• The government will have to offer interest-free loans, subsidies and incentives, etc for production.
• Special efforts would also be needed to dispose off the surplus sugar.
• This is essential to keep sugar prices at adequate levels and ensure cane-price payments on time.

What are the recommendations of the CACP?

• Some of the suggestions made by the Commission for Agricultural Costs and Prices (CACP) in this regard include the following:
• Farmers should be guaranteed a minimum cane price at the level of FRP.
• In addition, the liability of sugar mills will be restricted as per a revenue sharing formula (RSF).
• Accordingly, 75% of revenue realised from sugar will be the cane price payable by mills.
• If the cane-price, as per RSF, is more than FRP, the farmers get a second instalment over and above the FRP.
• When sugar prices are depressed, the price as per RSF may work out to below FRP.
• The gap would then be paid directly to the farmers from a fund created by the government (government is yet to approve it).
• Benefits - The sugar mills will pay farmers as per their revenue realisation and pay on time.
• Farmers get cane price at least at the level of FRP, or more with better sugar prices, instead of the current system of giving farmers only FRP.
• It will also keep cost of production reasonable, ensuring that Indian sugar is competitive globally to allow exporting the surplus.

Source: Financial Express