Thursday, November 19, 2009

The flawed policy on Sugarcane pricing

Sugarcane, the political crop of country is again back in news for all the wrong reasons, with sugarcane farmers in UP on the warpath against the state advised price (SAP) and centre’s Fair and Remunerative Price (FRP) for their produce.

The Centre’s insistence that the FRP, which it announced recently replacing the statutory minimum price (SMP), is almost 15% more than the earlier price and is just a floor price, and that millers are free to pay more than the FRP has failed to assuage the farmers. The Centre has already conveyed that sugar mills in the state will have to pay more than the announced rate of Rs 160-170 a quintal to the farmers. The Central Government has made a steep reduction in the price of sugarcane for the coming season. The State Governments used to announce a SAP of sugarcane which was higher than the Minimum Statutory Price (MSP) declared by the Centre. Last year the MSP was Rs 108 per quintal while the SAP was Rs 160-180 per quintal. Now the Centre has banned the practice of declaring Advisory Price. It has provided that the State Government will have to itself pay the difference between the lower Statutory Price and the higher Advisory price. This will put an end to the practice of state governments announcing a higher Advisory price since they do not have such financial muscle. The centre has announced a price of Rs 130 per quintal for this season against Rs 108 for the previous year. But this increase is deceptive. The Centre has fixed an FRP of Rs 129.84 a quintal for sugarcane for the 2009-10 season (October September), while UP has announced an SAP of Rs 160-170 a quintal. However, the prices indicated by the mills were above the FRP and SAP, this was much below the farmers’ demand of Rs 280 per quintal. Sugar mills have not started crushing this season for lack of supply as farmers are demanding much higher.

The persisting tussle between millers and growers has kept sugar supply tighter than even anticipated and jacked up consumers prices to Rs 35/kg. By January, unless big imports are made, sugar prices are projected to hit Rs 40/kg. UP sugar mills that produce almost 40 per cent of the country's total sugar are yet to start crushing operations that have already begun in states like Maharashra, Gujarat, Tamil Nadu and Karnataka. And, on top of it, the state government is disallowing them to process imported raw sugar. Sugarcane output in UP is expected drop marginally to 40 lakh tonnes in the 2009-10 sugar year on the back of a 17% acreage drop. Sugarcane farmers, especially in UP, will suffer huge losses by the Ordinance brought by the Centre.

The government should withdraw the Ordinance and consider it only after holding consultations with everyone. The pricing issue of cane should be brought to a earliest timely solution, since the delay in crushing of mature cane will result in loss of sucrose content and thereby, loss of recovery at a time when the country requires higher output. Hence, an all party acceptable price should soon to be decided. Early harvesting of matured cane will allow farmers to prepare field for wheat sowing which is likely to start by the end of December. Farmers have been reeling under the cut in sugarcane prices on the pretext of ‘fair and remunerative pricing’ and feeling threatened by the proposal to ban Khandsari/ Gur/ Jaggery production. There is some doubt concerning Pawar’s intentions while the sugar mills don’t want such low prices for the sugarcane, as it will result in farmers leaving the crop. A Cabinet note to amend rule 7 of the Sugarcane Control Order (SCO) is being revived to ensure total regulation of the gur industry’s use of sugarcane. This would mean that the Centre will once again (after 2007) acquire the power to predetermine the use of sugarcane by different industries.

Interestingly, no specific slab has been fixed for this mutually agreeable price, which will not be constant but would vary from place to place depending on the recovery of the crop. It would be up to the millers to work out what price they are capable of giving along with the farmers who have to agree to providing cane at that price.

The biggest loser in this imbroglio has been the common man, who, after reeling under the impact of an unprecedented rise in sugar prices, was hoping for some respite once the new crop was crushed. Sugar prices, which have already moved up by a whopping 87% since January, have again started rising because of the delay in crushing and low inventories with mills.

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